Document:

Exhibit 10.2

 

Teton Energy Corporation

2005 Long Term Incentive Plan

Administration – 2006 Awards

 

1.               PURPOSE

 

The
purpose of the Teton Energy Corporation (the “Company”) 2005 Long Term Incentive
Plan (the “Plan”), as set forth in the Plan, as amended from time to time, is
to give the Company a competitive advantage in attracting, retaining and
motivating officers, employees, directors, and certain consultants and advisors
through a long term incentive plan providing stock and performance-based awards
linked to shareholder value. The expectation is that the Company will be able to
provide incentives and rewards to Board Members, Executive Management, Key
Employees, and key consultants or operating partners, who are expected to
contribute to the financial results, revenue and profits, growth, and increase
in value of the Company, and to enhance the Company’s ability to attract and
retain persons who will make such contributions. By meeting these objectives,
the Plan is intended to benefit the interests of the Company’s shareholders.

 

This
Plan Administration document is intended to implement the rules consistent with
the Plan with respect to the issuances of Performance Share Units, as defined
below.

 

2.               DEFINITIONS

 

Unless
the context clearly indicates to the contrary or otherwise is in conflict with
applicable provisions of the Plan, the following words and terms have the
meanings set forth below:

 

(a)                                  Asset Sale. A sale or other disposition of
all or substantially all of the assets of the Company or a Primary Operating
Subsidiary.

 

(b)                                 Award. A grant to a Participant of a
specified number of Performance Share Units.

 

(c)                                  Award Date. The first day of the month in
which the Award is made.

 

(d)                                 Board. The Board of Directors of the Company.

 

(e)                                  Board Member. A member of the Board who is
not then also an employee of the Company.

 

(f)                                    Change of Control. See Plan.

 

(g)                                 Closing. The consummation of a Substantive
Transaction.

 

(h)                                 Committee. The Compensation Committee of the
Board.

 

(i)                                     Common Stock. The common capital stock of the
Company.

 

(j)                                     Company. Teton Energy Corporation, a
corporation incorporated under the laws of the state of Delaware.

 

(k)                                  Disability. See Plan.

 

(l)                                     Effective Date. The later of date on which
the Plan is approved by the Shareholders or July 1, 2005.

 

(m)                               Executive Management. The Company’s Chief
Executive Officer (“CEO”), Chief Financial Officer (“CFO”), and, if applicable,
Chief Operating Officer

 

 

(“COO”),
and any other officer or executive of the Company that the Committee designates
as Executive Management.

 

(n)                                 GAAP. Generally accepted accounting
principles in effect in the United States.

 

(o)                                 Key Employee. An employee of the Company,
other than Executive Management, who is considered to hold responsibilities
critical to the success of the Company, as determined by the CEO and approved
by the Committee.

 

(p)                                 Market Value. The “Market Value” of a
Substantive Transaction will be the total consideration paid or payable
directly or indirectly to the Company and/or its Shareholders (including holders
of options or other stock rights) in connection with or in anticipation of the
Substantive Transaction, regardless of how allocated or the form of
consideration. The total consideration will include the value of any retained
or acquired interest in the Company or its successor or the right to acquire
such an interest. In the event that all or a portion of the total consideration
includes capital stock, securities, or other property (other than installment
notes), total consideration will include the fair market value of those
non-cash items, as determined by the Board in good faith and on a reasonable
basis.

 

(q)                                 Market Value Payout. The payment that a
Participant is entitled to receive pursuant to Section 7(b).

 

(r)                                    Milestone Attainment Payout. A payment that a
Participant is entitled to receive pursuant to Section 7(a).

 

(s)                                  Net Proceeds. With respect to a Substantive
Transaction, the Market Value (i) reduced by the out-of-pocket expenses payable
by the Company or any of its Subsidiaries, including, without limitation,
investment banking fees and expenses, brokerage commissions, finder’s fees, and
legal and accounting fees and expenses, that are directly attributable to the
Substantive Transaction; (ii) reduced by the Performance Period Index; and (iii)
increased by any dividend paid during that period on Common Stock and preferred
stock and by any redemption or other distribution with respect to Common stock
or preferred stock.

 

(t)                                    Participant. Each member of the Board of
Directors who is granted an Award under the terms of the Plan; each member of
Executive Management who is as selected by the Committee to receive an Award
under the Plan; and any Key Employee; and any consultant or operating partners
who or which is selected by the Committee to receive an Award under the Plan.

 

(u)                                 Pendency. With respect to a Substantive
Transaction, the period between the execution of a definitive agreement
regarding the Substantive Transaction and its Closing.

 

(v)                                 Performance Measurement. A Performance
Measurement shall be that factor or those factors which the Committee
reasonably believes will best contribute to a favorable assessment of the
Company’s valuation in the market and achievement of which will provide
shareholders with the highest return upon a Substantive Transaction. The
Committee shall set the Performance Measurement annually upon the granting of each
Award and shall reassess the Performance Measurement prior to each Award Date.

 

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(w)                               Performance Period Index. With respect to the
Unit Value of a Performance Share Unit, initially, December 31, 2004, and
thereafter the last day of the fiscal year preceding the fiscal year in which
the Award Date for that Performance Share Unit occurs.

 

(x)                                   Performance Share Unit. A unit awarded to a
Participant by the Committee pursuant to the Plan, which serves as the basis to
calculate any Milestone Attainment Payout or Market Value Payout due to the
Participant under the terms of the Plan.

 

(y)                                 Performance Share Unit Award Agreement. An
agreement between the Company and a Participant that defines, among other
things, performance measurements and objectives necessary to vest Performance
Share Units.

 

(z)                                   Primary Operating Subsidiary. Any Subsidiary
through which the Company conducts a substantial portion of its business
activities.

 

(aa)                            Probable Reserves. Areas which are unproven but presumed
capable of production because of geological inference, for instance, proximity
to proven reserves in the same reservoir.

 

(bb)                          Proved Not
Developed (Behind-Pipe) Reserves.
Estimates of the amount of crude oil or natural gas recoverable by recompleting
existing wells (“PDNP”).

 

(cc)                            Proved Developed
Reserves. Estimates of what is
recoverable from existing wells with existing facilities from open, producing
payzones (“PDP”).

 

(dd)                          Proved Reserves. Estimates of the amount of oil or natural
gas believed to be recoverable from known reservoirs under existing economic
and operating conditions.

 

(ee)                            Proved Undeveloped Reserves. Estimates of what is recoverable through new
wells on undrilled acreage, deepening existing wells, or secondary recovery
methods (“PUD”).

 

(ff)                                Reserves. That portion of the identified resource
from which a usable mineral and energy commodity can be economically and
legally extracted at the time of determination, and specifically includes all
categories of reserves unless otherwise specifically excluded.

 

(gg)                          Retirement. The termination of a Participant’s
employment with the Company or a Participant’s Board membership, other than for
Cause, on or after the date as of which the Participant has reached age fifty-five
(55). For purposes of determining a Participant’s years of service, breaks in
service of less than one (1) full year will be disregarded.

 

(hh)                          Shareholders. The persons or entities that
own, beneficially or of record, shares of Common Stock in the Company.

 

(ii)                                  Special Adjustment Item. Any item of income
or expense that, in accordance with GAAP, constitutes an extraordinary item.

 

(jj)                                  Subsidiary. A business entity that is
controlled by, or under common control with the Company, determined in
accordance with Regulation S-X, 17 CFR §210.1-02(n).

 

(kk)                            Substantive Transaction. A sale, merger, or
other event or transaction that constitutes or results in a Change of Control.

 

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(ll)                                  Term. The five-year period beginning July 1,
2005 and ending June 30, 2010.

 

(mm)                      Termination. With respect to a Participant,
(i) a termination of the Participant’s employment with the Company or the
Participant’s Board membership other than a Termination or for Cause, or (ii)
in the case of a Participant who is an employee of the Company, a termination
of the Participant’s employment with the Company that qualifies the Participant
for severance benefits under any applicable employment agreement.

 

(nn)                          Termination for Cause. With respect to a
Participant who has a written employment agreement with the Company, a
termination of that Participant’s employment with the Company for a reason that
constitutes cause under the terms of that employment agreement. With respect to
a Participant who does not have a written employment agreement with the
Company, “Termination for Cause” means  the termination of the Participant’s
employment with the Company or the Participant’s Board membership due to, in
addition to the elements defined in Section 2(e) of the Plan, (i) the
Participant’s willful and continued failure to substantially perform his or her
duties to the Company (other than any such failure resulting from the
Participant’s Disability) after a written demand for substantial performance is
delivered to the Participant by the Board or, in the case of an employee, the
CEO, which demand specifically identifies the manner in which the Board or the
CEO, as applicable, believes that the Participant has not substantially
performed his or her duties; or (ii) the Participant’s breach of any
confidentiality agreement with the Company or any of its Subsidiaries or any
other unauthorized disclosure by the Participant of confidential, proprietary
information of the Company or any of its Subsidiaries or affiliates; or (iii)
the conviction of the Participant for the commission of a felony including the
entry of a guilty or no contest plea (and all rights to appeal the conviction
have expired or have been fully exercised), or any willful or grossly negligent
action or inaction by the Participant that has a materially adverse effect on
the Company or any of its Subsidiaries, or if the Participant pleads guilty or
no contest to any charges of having committed any felony that involves
embezzlement, theft, bribery, a violation of the federal securities laws or
other federal laws or any other business related crime that is alleged to have
been committed against the Company, or the shareholders, as a group, or in
connection with the Participant’s performance of services to the Company.

 

(oo)                          Unit Value. The “Unit Value” of a Performance
Share Unit on a Valuation Date will be one share of common stock.

 

(pp)                          Valuation Date. The last day of each fiscal
year of the Company.

 

3.               PARTICIPANTS

 

Executive
Management, Key Employee Participants, consultants, and operating partners will
be selected by the Committee, as of the date specified in the document
evidencing their selection. The CEO of the Company will keep an updated list of
all Participants, which will be attached to the Plan as Schedule “A.”  All Board Members will be Participants as of January 1, 2006
or, if later, the date they are first elected to the Board.

 

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4.               PERFORMANCE SHARE UNITS AVAILABLE

 

The
total number of Performance Share Units that may be awarded under the Plan in
respect of the 2006 Award is two million, five hundred thousand units (2,500,000),
of which 750,000 will be allocated to the Board Members, and 1,342,250 will be
allocable to Executive Management and Key Employees, 275,000 will be allocated
to consultants or operating partners, and 132,750 will be held in reserve to
provide for adjustment or special circumstances in the opinion of the
Committee, with input from the CEO; provided, however, that the CEO may not
provide input with respect to his own compensation. In the event that the 132,750
Performance Share Units are not used in respect of special circumstances, they may
be divided pro rata among the remaining Participants. Allocated Performance
Share Units are in respect of both base objectives and stretch objectives. The
Committee will have no obligation to award all of the Performance Share Units
allocable to Executive Management and Key Employees, consultants, or operating
partners.

 

In
the event that a Participant leaves the qualifying affiliation with the
Company, then, notwithstanding Section 10, the Performance Share Units awarded
to that Participant may be awarded to other Participants. In the case of a
Board Member’s Termination for Cause, the Performance Share Units of that Board
Member will be awarded to the person filling that Board Member’s vacancy on the
Board. In the case of a Termination for Cause of an Executive Management, Key
Employee Participant, a terminated consultant, or terminated operating partner,
the Performance Share Units of that Participant may be awarded by the Committee
to other existing Participants or new Participants.

 

The
Committee shall also be empowered to issue from the Performance Share Units held
for special situations to any individual (or group of individuals), including
directors, employees, or consultants for exceptional performance or significant
contribution that causes or otherwise effects a significant, demonstrable, and
verifiable increase in the Company’s equity value.

 

5.               GRANTS OF AWARDS

 

As
soon as practicable after the Effective Date and after each Valuation Date, the
Committee, in its sole discretion and in accordance with applicable provisions
of the Plan, will determine and grant Awards, if any, to Participants under the
Plan as of that Valuation Date in such number of Performance Share Units as
they may determine. Promptly after granting an Award to a Participant, the
Committee will notify the Participant of the number of Performance Share Units
included in the Award and the date as of which the Award is effective.

 

6.               ACCOUNTS AND CREDITED AMOUNTS

 

(a)                                  Accounts. Each Participant will have a bookkeeping
account under the Plan, which will be used as a record of the amounts credited
to the Participant under the Plan. The amount to be credited to the account of
each Participant as of each Valuation Date (the “Credited Amount”) will be the
aggregate of the Unit Value, as of that Valuation Date, of all of the Performance
Share Units awarded to the Participant prior to that Valuation Date.

 

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(b)                                 Determination of Credited Amount. The
Credited Amount in each account as of each Valuation Date will be verified by
the Company’s CFO. Each such verification will be conclusive and binding on the
Company and each Participant.

 

(c)                                  Reports. Each Participant, while a
Participant, will be furnished with a written statement within one hundred and
twenty (120) days after the end of each fiscal year of the Company ending
within the Term. The statement will show the number of Performance Share Units
awarded to the Participant, the Unit Value of each such Performance Share Unit
(with a calculation, in reasonable detail, of the Unit Value), and the Credited
Amount in the Participant’s account, all as of the Valuation Date coincident
with the end of the fiscal year for which the statement is made.

 

7.               PAYMENTS

 

(a)                                  Milestone Attainment Payout.

 

1)                                      Provided the milestones established in
Performance Unit Award Agreement have been met, if the Closing of a Substantive
Transaction has not occurred on or before December 31, 2006, each Participant
will be paid his or her Credited Amount as of December 31, 2006, as soon as
practicable after the audited financial statements of the Company as of that
date and for the year then ended are available, but in no event later than March
15, 2007. If the Closing of a Substantive Transaction does occur on or before December
31, 2006, the first scheduled Milestone Attainment Payout will not be made.

 

2)                                      Provided the milestones established in
Performance Unit Award Agreement have been met, if the Closing of a Substantive
Transaction has not occurred on or before December 31, 2007, each Participant
will be paid his or her Credited Amount as of December 31, 2007, reduced by any
amount of previous Milestone Attainment Payment received by the Participant, as
soon as practicable after the audited financial statements of the Company as of
that date and for the year then ended are available, but in no event later than
March 15, 2008. If the Closing of a Substantive Transaction does occur on or
before December 31, 2007, the second scheduled Milestone Attainment Payout will
not be made.

 

3)                                      Provided the milestones established in
Performance Unit Award Agreement have been met, if the Closing of a Substantive
Transaction has not occurred on or before December 31, 2008, each Participant
will be paid his or her Credited Amount as of December 31, 2008, reduced by any
amount of previous Milestone Attainment Payments received by the Participant,
as soon as practicable after the audited financial statements of the Company as
of that date and for the year then ended are available, but in no event later
than March 15, 2009. If the Closing of a Substantive Transaction does occur on
or before December 31, 2008, the third scheduled Milestone Attainment Payout
will not be made.

 

(b)                                 Market Value Payout.

 

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1)                                      If the Closing of a Substantive Transaction
occurs on or prior to December 31, 2006, each Participant will be paid, within twenty-five
(25) days after the Closing of the Substantive Transaction, the amount derived
by multiplying the number of Performance Share Units credited to that
Participant’s account by the price of the stock as valued at the Closing. In
the event that the Substantive Transaction results in Shareholders’ receiving
stock of the acquiring corporation, then each Participant shall receive stock
of the acquiring corporation on the same terms as the Shareholders assuming a
distribution of shares based on the number of Performance Share Units credited
to that Participant’s account immediately prior to such Substantive Transaction.

 

2)                                      If a Substantive Transaction has not occurred
on or before December 31, 2006, but the Closing of a Substantive Transaction
occurs on or before December 31, 2007, each Participant will be paid, within twenty-five
(25) days after the Closing of the Substantive Transaction, the amount derived
by multiplying the number of units credited to that Participant’s account by
the price of the stock as valued at the Closing. In the event that the
Substantive Transaction results in Shareholders’ receiving stock of the
acquiring corporation, then each Participant shall receive stock of the
acquiring corporation on the same terms as the Shareholders assuming a
distribution of shares based on the number of Performance Share Units credited
to that Participant’s account immediately prior to such Substantive Transaction.

 

3)                                      If a Substantive Transaction has not occurred
on or before December 31, 2007, but the Closing of a Substantive Transaction
occurs on or before December 31, 2008, each Participant will be paid, within
twenty-five (25) days after the Closing of the Substantive Transaction, the
amount derived by multiplying the number of units credited to that Participant’s
account by the price of the stock as valued at the Closing. In the event that
the Substantive Transaction results in Shareholders’ receiving stock of the
acquiring corporation, then each Participant shall receive stock of the
acquiring corporation on the same terms as the Shareholders assuming a
distribution of shares based on the number of Performance Share Units credited
to that Participant’s account immediately prior to such Substantive Transaction.

 

8.               VESTING

 

(a)                                  General Rule.

 

Vesting
of grants shall be in accordance with the parameters established by the Plan. Notwithstanding
any implication to the contrary, except as provided in Sections 8(b) and (c)
below, no Participant will have the right to receive (i) a Milestone Attainment
Payout unless he or she is an employee of the Company, a Board Member, or a
consultant (or operating partner) actively providing services to the Company as
of the last day of the period with respect to which the Equity Payout is made,
or (ii) a Market Value Payout unless he or she is an employee of the Company, a
Board Member, or a consultant actively providing services to the Company on the
date of the Closing of the Substantive Transaction that gives rise

 

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to
the Market Value Payout. Except as provided in Section 9, each Participant who
is employed by the Company, or is a Board Member, or who is a consultant (or
operating partner) and providing routine services to the Company as of the
applicable date specified above with respect to a Milestone Attainment Payout
or a Market Value Payout will be entitled to the payout even though he or she
may cease to be an employee or Board Member prior to the date on which the
payout is actually made.

 

(b)                                 Special Exception. In the event that, prior
to the last day of the period with respect to which a Milestone Attainment
Payout is made, a Participant terminates employment with or service to the
Company or Board Membership due to a Termination or his or her death,
Disability, or Retirement, the Participant (or his or her beneficiary, in the
case of death) will be entitled to receive a partial Milestone Attainment
Payout for that period. The amount of the partial Milestone Attainment Payout
will be based upon the combination of (i) the Participant’s Credited Amount as
of the termination of his or her employment or Board membership, and (ii) (A)
the additional Credited Amount that would have been credited to the Participant
for that fiscal year had he or she not terminated until after the end of the applicable
performance period, multiplied by (B) a fraction, the numerator of which is the
number of full months in the applicable performance period during which the
Participant was an employee of the Company or a Board Member and the
denominator of which is equal to the total number of months in the applicable
period. The partial Milestone Attainment Payout shall be made at the time
regular Milestone Attainment Payouts for the applicable performance period are
made to other Participants pursuant to Section 6. In the event that, during the
Pendency of a Substantive Transaction for which a Closing subsequently occurs,
a Participant terminates employment with the Company or Board Membership due to
a Termination or his or her death, Disability, or Retirement, then in lieu of
the partial Milestone Attainment Payout described above, the Participant (or
his or her beneficiary in the case of death) will be entitled to a Market Value
Payout. The amount of the Market Value Payout will be based on the Performance
Share Units awarded to the Participant prior to his or her termination and will
be equal to the amount of the Market Value Payout the Participant would have
received if he or she had not terminated until after the Closing. The Market
Value Payout will be made at the time regular Market Value Payouts are made to
other Participants pursuant to Section 6.

 

(c)                                  In the event the Plan terminates, all
Participants who are then employees or consultants of the Company or Board
Members will become entitled to a partial Milestone Attainment Payout, the
amount of which will be based upon the combination of (i) the Participant’s
Credited Amount as of the Plan termination date, and (ii) (A) the additional
Credited Amount that would have been credited to the Participant for the fiscal
year if the Plan had not terminated, (B) multiplied by a fraction, the
numerator of which is the number of full months from the beginning of the applicable
Milestone Attainment Payout period during which the Plan terminated until the
effective date of the Plan termination and the denominator of which is equal to
the total number of months in the applicable period. If the Plan is terminated
during the Pendency of a Substantive Transaction or in anticipation of a
Substantive Transaction that is under serious consideration, then in the event
that a Closing occurs with respect to that

 

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Substantive
Transaction, in lieu of the partial Milestone Attainment Payout described in
the preceding sentence, the Participants who are employees of the Company,
Board Members, engaged consultants, or active operating partners on the date
that Board action is taken to terminate the Plan will receive the Market Value
Payout they would have received under Section 6 had the Plan not terminated. The
Market Value Payout will be made within twenty-five (25) days of the Closing of
the Substantive Transaction.

 

9.               TERMINATION OF
RIGHTS

 

Notwithstanding any other implication to the contrary in the Plan, no
Participant will be entitled to any Milestone Attainment Payout or Market Value
Payout if the Participant’s employment with the Company or membership on the
Board has been terminated for Cause (or the consultant has been termination for
reasons suggestive of cause had such consultant been an employee, or such
operating partner’s contract with the Company has been terminated). In the
event a Participant has merely been charged by a governmental authority with
committing any such crime, or the Participant has been convicted of the crime
but all rights to appeal the conviction have not expired and have not been
fully exercised, at the time any Milestone Attainment Payout or Market Value
Payout is payable, the Company may pay the amount of the payment into an
interest-bearing escrow account, and the amount, plus any interest earned on it
will be paid to (A) the Participant upon the earlier to occur (1) of the
Participant having been acquitted of the charges,  (2) the charges having been dismissed, or (3)
the conviction having been reversed on appeal, and (B) to the Company upon the
Participant (1) having been convicted of the charges, and all rights to appeal
the conviction having expired or having been fully exercised, or (2) having
entered a plea of guilty or “no contest” to the charges.

 

10.         ADJUSTMENTS

 

Notwithstanding
any implication to the contrary in the Plan, if any calculation of a Milestone
Attainment Payout or Unit Value is made as of a Valuation Date other than the
last day of any fiscal year of the Company, the calculation shall be subject to
recalculation and appropriate adjustment in the event the preparation of the
audited financial statements of the Company and its Subsidiaries for the fiscal
year reveals that the initially reported Performance Measurements are required
under GAAP to be adjusted.

 

11.         MISCELLANEOUS

 

(a)                                  Assignments. A Participant’s rights and
interest under the Plan in any Performance Share Units or the appreciation of
the Unit Value of Performance Share Units may not be assigned or transferred
except by will or by the laws of descent or distribution.

 

(b)                                 No Rights Implied. No employee of the
Company, Board Member, or other person shall have any claim or right to be
granted an Award under the Plan. Neither the Plan nor any action taken under
the Plan will be construed as giving an employee of the Company or Board Member
any right to be retained in the employment or Board membership of the Company.

 

(c)                                  Withholding. Payments from the Plan
constitute compensation, and the Company will have the right to deduct from all
payments any federal, state, or local taxes required by law to be withheld with
respect to those payments.

 

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(d)                                 Status of Rights. Performance Share Units
will be used solely as a device for the measurement and determination of the
amount to be paid to Participants as provided in the Plan. Performance Share
Units will not constitute, or be treated as, the property or a trust fund of
any kind of any Participant. All amounts at any time attributable to Performance
Share Units will be and remain the sole property of the Company, and all
Participants’ rights under the Plan are limited to the rights to receive
distributions as provided in the Plan. The Plan creates only a contractual
obligation to each Participant on the part of the Company. No Participant will
have any rights against the Company with respect to the benefits under the Plan
except as a general unsecured creditor of the Company. No Participant will be
entitled to the payment of any dividend or any interest, except as specifically
provided to the contrary in the Plan, with respect to any amount to which the
Participant is otherwise entitled under the Plan. The rights with respect to
all Performance Share Units that have not been awarded as of the occurrence of
a Change of Control, or the expiration of the Term, will revert to the Company.

 

(e)                                  Effect on Other Benefits. The appreciation in
the Unit Value of the Performance Share Units awarded under the Plan to each
Participant will not be deemed salary or other compensation to the Participant
for the purpose of computing benefits to which the Participant may be entitled
under any retirement or other benefit plan maintained by the Company or under
any other arrangement for the benefit of the Participant.

 

(f)                                    Severability. The invalidity or
unenforceability of any provision of the Plan will not affect the validity or
enforceability of any other provision or any other portion of that provision.

 

(g)                                 Conflict Resolution. This plan of
administration and the rights conferred on Participants hereunder are subject
to all terms and conditions of the Plan, as the same may be amended from time
to time, as well as any such other rules and regulations (whether herein or in
any other document) 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 plan of administration, all of which shall
be binding on the participant. Any inconsistency between this plan of
administration and the Plan shall be resolved in favor of the Plan.

 

(h)                                 Governing Law. The Plan will be construed in
accordance with, and governed by, the laws of the State of Colorado with
respect to contracts made effective and to be performed wholly within that
state.

 

(i)                                     Headings. The headings and captions of the
sections and subsections of the Plan are provided for convenience of reference
only and will not in any way affect the meaning or interpretation of any
provision of the Plan.

 

12.         BENEFICIARIES

 

Each
Participant will be required to sign a form provided by the Company by which
the Participant will designate a beneficiary or beneficiaries to receive the
amount that the Participant is entitled to receive under the Plan in the event
of the Participant’s death. In the

 

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event
all designated beneficiaries predecease the Participant, then the Participant’s
beneficiaries, in the priority of order listed, will be the following:

 

(a)                                  The trustee then existing of any inter vivos
(living) trust (including any amendment to the trust up to the time of the
Participant’s death) established by the Participant for the benefit of the
Participant’s surviving spouse and/or issue, provided the Participant’s surviving
spouse, if any, is either a signatory to the trust instructions, or
acknowledges, in a writing to the Committee, the surviving spouse’s approval of
the trust;

 

(b)                                 The Participant’s surviving spouse, if any;

 

(c)                                  The Participant’s lawful living issue (including
adopted issue) who survive the Participant, with each such issue’s beneficial
interest to be determined by right of representation; and

 

(d)                                 The Participant’s estate.

 

13.         TERMINATION AND AMENDMENT OF PLAN

 

No
Awards may be made after the grants made for 2010, unless such grant is in
respect of a new Participant who was not in the Company’s employ or otherwise
affiliated with the Company on the Valuation Date for 2010. The Committee may
at any time, and from time to time, amend, alter, or suspend the Plan in whole
or in part; provided, however, no such alteration, amendment, or suspension
may, without the consent of the Participant to whom any Award has been granted,
reduce the Participant’s Credited Amount as of the date of the amendment, or
materially adversely affect the Participant’s right to receive a benefit based
on that Credited Amount. Subject to the provisions of Section 8(c), the
Company, by action of the Board, may terminate the Plan any time. The Plan will
terminate automatically upon the Closing of a Substantive Transaction, subject
to the consummation of the transactions contemplated hereby.

 

IN WITNESS WHEREOF, Teton Energy Corporation, by
resolutions duly adopted by its Compensation, has caused the Administration of
the Long-Term Incentive Plan, which plan was approved by its shareholders on
June 28, 2005, to be executed by its duly authorized officer this 17th
day of March, 2006.

 

	
   

  	
  TETON ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Chairman

  	
   

  

 

 

	
   

  	
  ATTEST:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Secretary

  	
   

  

 

11Exhibit 10.3

 

 

 

AGREEMENT

 

BETWEEN

 

TETON ENERGY CORPORATION

 

AND

 

ANDREW M. SCHULTZ

(Executive)

 

This agreement, dated as of April 1, 2006 (the “Agreement”),
is entered into by and between Teton Energy Corporation, a Delaware corporation
(the “Company”), and Andrew M. Schultz (“Executive”) (collectively, the “Parties,”
individually, a “Party”).

 

Whereas, the Executive has been providing services
for the Company under a consulting agreement as a contract petroleum engineer;
and

 

Whereas, the Parties desire to establish the rights,
duties and obligations of each, which shall be generally stated herein and
which may be more fully stated in other agreements between the parties,
including performance share agreements, restricted stock award agreements, and
other employment or incentive related agreements as the Company or its Board of
Directors may adopt from time to time;

 

Now, Therefore, in consideration of the promises,
and for other good and valuable consideration, the Company and Executive agree
as follows:

 

Teton Energy Corporation • 410 17th
Street, Suite 1850 • Denver, CO 80202 • Tel: 303-565-4600

 

 

ARTICLE ONE

 

EMPLOYMENT AGREEMENT

 

1.1                               Title and Duties.

 

(i)                                     Executive shall serve as Vice President, Production
of the Company.

 

(ii)                                  Executive’s employment shall be for an
initial term of one (1) year, commencing from April 1, 2006. The term
of this Agreement shall be automatically extended on the day after the first
year anniversary of the date of this Agreement, and on each second anniversary
thereof, for an additional two (2)-year periods unless, with respect to any
such extension, either party notifies the other in writing, not less than 60
days prior to any anniversary hereof, that he or it, as the case may be,
desires to terminate this Agreement as of the end of its term.

 

(iii)  Executive shall report to the Chief
Executive Officer (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, oversee and direct the operations
of the Company, and shall perform such duties as are customarily performed
by a vice president of production of a company such as the Company or as are
otherwise delegated to him from time to time by the Company’s CEO.

 

(iv)  During the term of this Agreement, except
as otherwise approved by the CEO or as provided below, Executive shall devote
substantially all of his entire working time, attention and energy to the
business and affairs of the Company and in the advancement of the best
interests of the Company and its subsidiaries. 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,

 

2

 

with
the business of the Company or any of its subsidiaries; (b) fulfilling
speaking engagements; (c) engaging in charitable and community activities;
and (d) managing his personal business and investments.

 

Specifically, during the entire term of this Agreement, including any extension thereof, the Executive shall 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. In furtherance of the foregoing:
 
(w) The Executive represents that his employment by the Company will not conflict with any obligations which he has to any other person, firm or entity. The Executive specifically represents that 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.
 
(x) Executive shall not, without disclosure to and approval of the Board of Directors of the Company, 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 2% of the outstanding securities of any class of any publicly-held corporation shall not be deemed a violation of this sub-paragraph 1.1(iv)(x). Executive and the Board agree that the list of activities and interests attached as Exhibit A to this Agreement shall be considered appropriately disclosed and approved.
 
(y) Executive shall promptly disclose to the directors of the Company, in accordance with the Company’s policies, full information concerning any interests, direct
 
3

 
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 2% of the outstanding securities of any class of any publicly held corporation.
 
(z) The Executive shall not disclose to any person or entity any confidential or secret information with respect to the business or affairs of the Company, or any of its subsidiaries or affiliates.
 
Nothing in this Agreement shall be deemed to preclude the Executive from participating in other business opportunities if and to the extent that: (i) 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, (ii) 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 (iii) the Executive’s activities with respect to such opportunity have been fully disclosed in writing to the Company’s Board of Directors.
 

1.2                               Base Salary.

 

Executive shall receive an initial annual base
salary of $165,000, 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 annually for adequacy.

 

1.3                               Cash Bonus.

 

The Executive shall be eligible for any cash bonus
component of up to 100% of the Executive’s salary that may be approved by
the Compensation Committee of the Board of Directors from time to time.

 

4

 

1.4                               Long-term Incentive Plan
Participation.

 

Executive shall be entitled to participate in the
Company’s Long-term Incentive Plan, based on assessment by the Board or its
Compensation Committee, of both corporate and personal performance. Upon a
change in control, as defined in paragraph 3.1 herein, all awards and
equity-based compensation will be treated in the same manner as if Executive’s
employment were terminated by the Company not for cause under paragraph 1.6(ii) herein.

 

1.5                               Severance Benefit.

 

At any time on or after a change in control of the
Company, as defined in paragraph 3.1, if Executive’s employment is terminated,
other than for cause, the provisions of paragraph 1.6(ii) herein shall
apply.

 

1.6                               Termination.

 

As provided in this section, this Agreement may be
terminated (a) by the Company for Cause or without Cause, (b) may be
terminated by Executive for Good Reason or no reason, (c) upon the death
or disability of the Executive, or (d) upon the natural expiration of the
term of this Agreement with no extension.

 

(i)                                     For Cause. This Agreement may be terminated by the Company for Cause by
written notice to Executive, specifying the event relied upon for such
termination, within thirty (30) days of such event. “Cause” shall be defined
solely as (a) Executive’s defalcation or misappropriation of funds or
property of the Company, or the commission of any other illegal act in the
course of his employment with the Company which, in the reasonable judgment of
the Board of Directors, has a material adverse financial effect on the Company
or on Executive’s ongoing abilities to carry out his duties under this
Agreement; (b) Executive’s conviction of a felony or of any crime
involving moral turpitude, and affirmance of such conviction following the
exhaustion of any appeals; (c) chronic unapproved absenteeism (other than
for a temporary or permanent Disability), which remains uncured following
thirty (30) days after written notice of such alleged Cause by the Board of
Directors; or (d) any material and substantial breach by Executive of
other terms and conditions of this Agreement, which, in the reasonable judgment
of

 

5

 

the
Board of Directors, has a material adverse financial effect on the Company or
on Executive’s ongoing abilities to carry out his duties under this Agreement
and which remains uncured following thirty (30) days after written notice of
such alleged Cause by the Board of Directors.

 

(ii)                                  Without Cause. The termination by Company of Executive’s
employment for any reason other than those specified in the preceding paragraph
1.6(i) shall be deemed to be a termination of his employment Without Cause,
following which (a) Company will pay Executive in a sum of six (6) months
severance, which may be payable in a lump sum or in equal monthly
installments, at the Company’s option; (b) all equity-based compensation,
including compensation pursuant to the Corporation’s Long-term Incentive Plan
shall immediately vest; (c) all Performance Share Units and Stock
Appreciation Rights (as those terms are defined in the Long-Term Incentive Plan)
shall be payable in Common Stock; and (d) the Company shall withhold an
amount reasonably related to 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, in order to assure compliance with applicable federal and state
tax laws.

 

(iii)                               Reduction of Duties, etc. Executive may terminate this Agreement for
Good Reason at any time during Executive’s employment, without the Company’s
prior written consent, (a) in the event of any material adverse change in
or reduction by the Company of Executive’s functions, duties or
responsibilities, (b) Executive is asked to move from his current primary
residence and does not desire to do so, (c) any removal of Executive from
any of the positions contemplated by this Agreement, or (d) other material
breach of this Agreement by the Company, by written notice to the Company
specifying the event relied upon for such termination, within ninety (90) days
after such event. Such termination will have the same effect as a termination
Without Cause by the Company as set forth in paragraph 1.6(ii).

 

(iv)                              Change in Control. In the event of a change in control, which
change in control occurs after November 1, 2006, Executive may terminate
this Agreement (a) immediately

 

6

 

before
or after such change in control, for whatever reason, and regardless of the
consequences of such change in control to Executive, (b) during the first
twelve (12) months after such change in control, if Executive in his sole
discretion concludes that his continued employment is not acceptable to him, or
(c) during the first twenty-four (24) months after such change in control,
if Executive in his sole discretion, concludes that his duties,
responsibilities or authorities have materially changed. In such event such
termination shall have the same effect as if Executive were terminated without
cause as set forth in paragraph 1.6(ii).

 

(v)                                 Death or Disability. In the event of Executive’s death during
his employment hereunder, his base salary shall be paid to his estate or
legally appointed representative through the end of the month in which it
occurs. If Executive becomes physically or mentally disabled so as to become
unable, for a period of more than six consecutive months or for shorter periods
aggregating at least six months during any twelve-month period, to perform his
duties hereunder on a substantially full-time basis, Executive’s employment
shall terminate, with no further payments of base salary as of the end of such
six months or such twelve-month period. Upon Executive’s death or disability
all vesting schedules, performance goals or other restrictions applicable to
Executive’s equity-based compensation, deferred compensation, life insurance,
retirement, or other benefits provided herein or in other agreements between
Executive and the Company, or any of its subsidiaries, then in effect, shall be
deemed satisfied. In the event of the Executive’s death, the Executive’s spouse
or estate shall receive the Executive’s Teton equity-based compensation as
provided in the applicable plan governing the treatment of such awards under
such circumstances. Executive’s bonus for such year shall be prorated through
the end of the month in which his death occurs or the date of termination in
the event of his disability.

 

(vi)                              Termination by Executive without Good Reason. Upon a written notice stating the effective
date 30 days prior to the stated effective date, Executive may terminate
this Agreement and resign from Executive’s employment hereunder without any
Good Reason. In the event that Executive terminates his employment without Good
Reason, then he shall be entitled to 

 

7

 

Executive’s
then Base Salary paid as of the effective date of termination; any earned but
unpaid Bonus for the preceding fiscal year; and any unreimbursed business
expenses or dues described in this Agreement.

 

(vii)                           Continuation of Payments During Disputes. The Parties recognize that in the event of
any dispute as to Executive’s entitlement to continuing compensation under any
of the provisions of this Agreement, the Company’s economic position is greatly
stronger than that of Executive, and that Executive would suffer substantial
and continuing injury should the Company cease payment of compensation due to
Executive hereunder in the case of a termination which the Company contends is
for cause, or if the Company disputes Executive’s entitlement to invoke his
right to terminate his employment under paragraph 1.6(iii) or (iv). Accordingly,
the Parties have agreed that (a) in the case of any termination which the
Company contends is for cause, but Executive claims is not for cause, or (b) in
the case of any termination by Executive under paragraph 1.6(iii) or
paragraph 1.6(iv), 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 (x) the termination was for Cause, or (y) such termination by
Executive was not authorized under paragraph 1.6(iii), or paragraph 1.6(iv),
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 paragraph 2.8 hereof. This provision is made by the
Parties for the purpose of compensating Executive for the loss he would suffer
in the case of an unfounded discontinuation of compensation, and to encourage
fairness and equitable dealing between the Parties in the event of dispute.

 

 

8

 

1.7                               Benefits.

 

(i)  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.

 

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

 

(iii)  Executive shall be entitled to four (4) weeks
of vacation per calendar year, which vacation level shall be reviewed by the
compensation committee of the Company’s Board from time to time. In the event
that all four weeks of Executive’s vacation are not used in any calendar year,
Executive may carry over two weeks of vacation into a subsequent year. 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.

 

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.

 

(iv)  The Company shall provide, in its
articles of incorporation and its bylaws, in a form reasonably
satisfactory to Executive, for his indemnification to the maximum extent
permissible by law.

 

9

 

1.8                               Expense Reimbursement. Executive shall be entitled to
reimbursement within a reasonable time for all properly documented and approved
expenses for travel. Teton shall reimburse business expenses of Executive
related to Teton 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 the US, 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 in
Russia or other countries (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.

 

ARTICLE TWO

 

MISCELLANEOUS

 

2.1                               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.

 

2.2                               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 provisions governing indemnification of Executive.

 

10

 

2.3                               Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to constitute an original. Each
such counterpart shall become effective when one counterpart has been
signed by each Party thereto.

 

2.4                               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.

 

2.5                               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.

 

2.6                               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.

 

2.7                               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

 

11

 

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.

 

2.8                               Attorneys’ 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).

 

2.9                               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.

 

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

 

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

 

2.12                        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.

 

2.13                        Survival. This Agreement shall constitute a binding
obligation of the Company and any successor thereto.

 

12

 

ARTICLE THREE

 

CHANGE IN CONTROL

 

3.1                               Definition. For purposes of this Agreement and any
other agreement between Executive and the Company, or any of its subsidiaries,
a “change in control” shall be deemed to have occurred if (i) any “person”
(as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934) is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 25% or more of any class of
voting securities of the Company’s then outstanding securities; or (ii) during
any period of twenty-four (24) consecutive months, individuals who at the
beginning of such period were members of the Board cease for any reason to
constitute at least a majority of the Board unless the election, or the
nomination for election by the Company’s shareholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period; or (iii) the
stockholders of the Company approve a definitive agreement (A) for a
merger or other business combination of the Company with or into another
corporation pursuant to which the Company will not survive or will survive only
as a subsidiary of another corporation, (B) for the sale or other
disposition of all or substantially all of the assets of the Company, other
than a sale or other disposition of all or substantially all of the assets of
the Company that was in existence or had been announced prior to the effective
date of this Agreement, even if its ultimate closing does not occur until after
the effective date of this Agreement, (C) for the merger of another
corporation into the Company if, as a result of such merger, less than sixty
percent (60%) of the outstanding voting securities of the Company shall be
owned, immediately after such merger, by the owners of the voting shares of the
Company outstanding immediately prior to such merger, or (D) any
combination of the foregoing.

 

13

 

ARTICLE FOUR

 

NON-COMPETETITION &
CONFIDENTIALITY

 

4.1                               Non-Competition. 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 (i) the
Company is engaged in oil and gas business, (ii) maintains secret and
confidential information, (iii) during the course of Executive’s
employment by the Company such secret or confidential information may become
known to Executive, and (iv) 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 to the
following:

 

(a)                                  Executive shall not use or disclose at any
time during Executive’s employment with the Company, or at any time thereafter,
any trade secret or proprietary or confidential information of the Company or
any of its affiliates.

 

(b)                                 During Executive’s
employment with the Company and for so long as Executive receives any severance
benefit 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,
partnership or other enterprise or venture which conducts a business which is
in direct competition with the business of the Company, with the exception of
the outside activities listed in Exhibit A; provided, however, that
Executive may own not more than 2% of the outstanding securities, or
equivalent equity interests, of any class of any corporation or firm which
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 and
shall be measured from the date such payment is received. It is expressly agreed that the remedy at law
for breach

 

14

 

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

 

(c)                                  Executive agrees to
receive confidential, proprietary and other information of the Company in
confidence, and not, directly or indirectly, during the term of is employment
or any time after his employment is terminated for any reason to disclose or
furnish to others, assist others in the application of or use for Executive’s
own gain, such information, including, but not limited to, the Company’s
customer, supplier, distributor and investor lists, trade secrets, methods of
conducting or obtaining business. Furthermore, whether or not such information
comprises proprietary information, trade secrets, or confidential information,
Executive also agrees not to disclose, furnish to others, assist others in the
application of, or use for Executive’s own gain, either any information within
the categories of information herein above specifically listed, including the
identity of any customers and/or investors of the Company, or any other
information relating to the Company s business not made available by the
Company to the public or in the public domain.

 

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.

 

4.2                               Confidentiality. Executive shall execute, if he has not
already done so prior to the execution of this Agreement, the Company’s
confidentiality agreement covering employees, which confidentiality agreement
shall become an integral component of this Agreement.

 

15

 

ARTICLE V

 

INDEMNIFICATION

 

In consideration of the other mutual promises and
agreements contained herein, Executive shall be covered under the following
indemnification agreement, in addition to any other indemnification that may be
available under relevant law or corporate agreements:

 

WHEREAS, it is essential to the Company to retain
and attract as directors and officers the most capable persons available, and

 

WHEREAS, the substantial increase in corporate
litigation subjects directors and officers to expensive litigation risks, and

 

WHEREAS, the Company’s Amended and Restated
Certificate of Incorporation, as amended and/or its Amended Bylaws, as amended
(the “Corporate Documents”) provides for indemnification of officers and
directors and further provides that indemnification of agents of the Company by
the Company is authorized through agreements with such agents in certain
circumstances and with certain limitations, and

 

NOW THEREFORE, as part of Executive’s Agreement
the Company and Executive do hereby agree as follows:

 

1. Agreement to Serve. Executive agrees to serve or
continue to serve as a director or officer of the Company for so long as
Executive is duly elected or appointed or until such time as Executive tenders
Executive’s resignation or Executive’s status as a director or officer is
terminated.

 

2. Definitions. As used in this Agreement:

 

(a) The term “Proceeding” shall include any
threatened, pending or completed action, suit, arbitration, alternative dispute
resolution proceeding, administrative hearing or other proceeding, whether
brought by or in the right of the Company or otherwise and whether of a civil,
criminal, administrative or investigative nature, and any appeal therefrom.

 

16

 

(b) The term “Corporate Status” shall mean the
status of a person who is or was a director or officer of the Company, or is or
was serving, or has agreed to serve, at the request of the Company, as a director,
officer, partner, trustee, member, employee or agent of another Company,
partnership, joint venture, trust, limited liability company or other
enterprise.

 

(c)  The term “Expenses” shall include, without
limitation, reasonable attorneys’ fees, retainers, court costs, transcript
costs, fees and expenses of experts, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service fees
and other disbursements or expenses of the types customarily incurred in connection
with investigations, judicial or administrative proceedings or appeals, but
shall not include the amount of judgments, fines or penalties against Executive
or amounts paid in settlement in connection with such matters.

 

(d)  References to “other enterprise” shall
include employee benefit plans; references to “fines” shall include any excise
tax assessed with respect to any employee benefit plan; references to “serving
at the request of the Company” shall include any service as a director,
officer, employee or agent of the Company that imposes duties on, or involves
services by, such director, officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in
the interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner “not opposed to the best interests of
the Company” as referred to in this Agreement.

 

(e)  The term “Change of Control” shall mean
the same as that term is used and defined in Article III of this Agreement.

 

3. Indemnification in Third-Party Proceedings. The
Company shall indemnify Executive in accordance with the provisions of this
Paragraph 3 if Executive was or is a party to or threatened to be made a party
to or otherwise involved in any Proceeding (other than a

 

17

 

Proceeding
by or in the right of the Company to procure a judgment in its favor) by reason
of Executive’s Corporate Status or by reason of any action alleged to have been
taken or omitted in connection therewith, against all Expenses, judgments,
fines, penalties, liabilities or losses and, to the extent permitted by law,
amounts paid or to be paid in settlement actually and reasonably incurred by
Executive or on his behalf in connection with such Proceeding, if Executive
acted in good faith and in a manner which Executive reasonably believed to be
in, or not opposed to, the best interests of the Company and, with respect to
of any criminal Proceeding, had no reasonable cause to believe that his conduct
was unlawful. The termination of any Proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that Executive did not act in good faith and in a
manner which Executive reasonably believed to be in, or not opposed to, the
best interests of the Company, and, with respect to any criminal Proceeding,
had reasonable cause to believe that his conduct was unlawful.

 

4. Indemnification in Proceedings by or in the Right
of the Company. The Company shall indemnify Executive in accordance with the
provisions of this Paragraph 4 if Executive was or is a party to or threatened
to be made a party to or otherwise involved in any Proceeding by or in the
right of the Company to procure a judgment in its favor by reason of Executive’s
Corporate Status or by reason of any action alleged to have been taken or
omitted in connection therewith, against all Expenses, judgments, fines,
penalties, liabilities or losses and, to the extent permitted by law, amounts
paid or to be paid in settlement actually and reasonably incurred by Executive
or on his behalf in connection with such Proceeding, if Executive acted in good
faith and in a manner which Executive reasonably believed to be in, or not
opposed to, the best interests of the Company, except that no indemnification
shall be made under this Paragraph 4 in respect of any claim, issue, or matter
as to which Executive shall have been adjudged to be liable to the Company,
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the

 

18

 

adjudication
of such liability but in view of all the circumstances of the case, Executive
is fairly and reasonably entitled to indemnity for such Expenses as the Court
of Chancery or such other court shall deem proper. The termination of any
Proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
Executive did not act in good faith and in a manner which Executive reasonably
believed to be in, or not opposed to, the best interests of the Company, and,
with respect to any criminal Proceeding, had reasonable cause to believe that
his conduct was unlawful.

 

5. Exceptions to Right of Indemnification. Notwithstanding
anything to the contrary in this Agreement, except as set forth in Paragraph
10, the Company shall not indemnify Executive in connection with a Proceeding
(or part thereof) initiated by Executive unless the initiation thereof was
approved by the Board of Directors of the Company. Notwithstanding anything to
the contrary in this Agreement, the Company shall not indemnify Executive to
the extent Executive is reimbursed from the proceeds of insurance, and in the
event the Company makes any indemnification payments to Executive and Executive
is subsequently reimbursed from the proceeds of insurance, Executive shall
promptly refund such indemnification payments to the Company to the extent of
such insurance reimbursement.

 

6. Indemnification of Expenses of Successful Party.
Notwithstanding any other provision of this Agreement, to the extent that
Executive has been successful, on the merits or otherwise, in defense of any
Proceeding or in defense of any claim, issue or matter therein, Executive shall
be indemnified against all Expenses incurred by him or on his behalf in
connection therewith. Without limiting the foregoing, if any Proceeding or any
claim, issue or matter therein is disposed of, on the merits or otherwise
(including a disposition without prejudice), without (i) the disposition
being adverse to Executive, (ii) an adjudication that Executive was liable
to the Company, (iii) a plea of guilty or nolo contendere by Executive, (iv) an
adjudication that Executive did not act in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and (v) with respect to any criminal 

 

19

 

proceeding,
an adjudication that Executive had reasonable cause to believe his conduct was
unlawful, Executive shall be considered for the purposes hereof to have been
wholly successful with respect thereto.

 

7. Notification and Defense of Claim. As a condition
precedent to his right to be indemnified, Executive must notify the Company in
writing as soon as practicable of any Proceeding for which indemnity will or
could be sought by him and provide the Company with a copy of any summons,
citation, subpoena, complaint, indictment, information or other document
relating to such Proceeding with which he is served. With respect to any
Proceeding of which the Company is so notified, the Company will be entitled to
participate therein at its own expense and/or to assume the defense thereof at
its own expense, with legal counsel reasonably acceptable to Executive. After
notice from the Company to Executive of its election so to assume such defense,
the Company shall not be liable to Executive for any legal or other expenses
subsequently incurred by Executive in connection with such claim, other than as
provided below in this Paragraph 7. Executive shall have the right to employ
his own counsel in connection with such claim, but the fees and expenses of
such counsel incurred after notice from the Company of its assumption of the
defense thereof shall be at the expense of Executive unless (i) the
employment of counsel by Executive has been authorized by the Company, (ii) counsel
to Executive shall have reasonably concluded that there may be a conflict
of interest or position on any significant issue between the Company and Executive
in the conduct of the defense of such action or (iii) the Company shall
not in fact have employed counsel to assume the defense of such action, in each
of which cases the fees and expenses of counsel for Executive shall be at the
expense of the Company, except as otherwise expressly provided by this
Agreement. The Company shall not be entitled, without the consent of Executive,
to assume the defense of any claim brought by or in the right of the Company or
as to which counsel for Executive shall have reasonably made the conclusion
provided for in clause (ii) above. The Company shall not be required to
indemnify Executive under this Agreement for any amounts paid in settlement of
any

 

20

 

Proceeding
effected without its written consent. The Company shall not settle any
Proceeding in any manner which would impose any penalty or limitation on
Executive without Executive’s written consent. Neither the Company nor Executive
will unreasonably withhold their consent to any proposed settlement.

 

8. Advancement of Expenses. Subject to the
provisions of Paragraph 9 below, in the event that the Company does not assume
the defense pursuant to Paragraph 7 of this Agreement of any Proceeding to
which Executive was or is a party or is threatened to be made a party by reason
of his Corporate Status or by reason of any action alleged to have been taken
or omitted in connection therewith and of which the Company receives notice
under this Agreement, any Expenses incurred by Executive or on his behalf in
defending such Proceeding shall be paid by the Company in advance of the final
disposition of such Proceeding; provided, however, that the payment of such
Expenses incurred by Executive or on his behalf in advance of the final
disposition of such Proceeding shall be made only upon receipt of an
undertaking by or on behalf of Executive to repay all amounts so advanced in
the event that it shall ultimately be determined that Executive is not entitled
to be indemnified by the Company as authorized in this Agreement. Such
undertaking shall be accepted without reference to the financial ability of Executive
to make repayment.

 

9. Procedure for Indemnification. In order to obtain
indemnification or advancement of Expenses pursuant to Paragraphs 3, 4, 6 or 8
of this Agreement, Executive shall submit to the Company a written request,
including in such request such documentation and information as is reasonably
available to Executive and is reasonably necessary to determine  whether and to what extent Executive is
entitled to indemnification or advancement of Expenses. Any such
indemnification or advancement of Expenses shall be made promptly, and in any
event within 30 days after receipt by the Company of the written request of Executive,
unless with respect to requests under Paragraphs 3, 4 or 8 the Company
determines within such 30-day period that such Executive did not meet the
applicable standard of conduct for indemnification set forth in

 

21

 

Paragraph
3 or 4, as the case may be. The Board of Directors of the Company shall
either (a) approve the indemnification and advancement of Expenses (i) by
a majority vote of the Directors of the Company consisting of persons who are
not at that time parties to the Proceeding (“Disinterested Directors”), whether
or not a quorum; or (ii) by a committee of Disinterested Directors
designated by a majority vote of Disinterested Directors, whether or not a
quorum; or (b) designate independent legal counsel (appointed by the
Company and approved by Executive) who shall, within said 30-day period,
provide a written opinion to the Board as to whether Executive has met the
relevant standards of conduct for indemnification and advancement of Expenses.
The obligations of the Company hereunder with respect to the payment of any
Expenses, judgment, fine or penalty shall be subject to the condition that the
independent legal counsel shall not have determined (in a written opinion) that
Executive is not permitted to be indemnified under the applicable standards of
conduct for indemnification.

 

The obligation of the Company regarding the
advancement of Expenses pursuant to this Agreement shall be subject to the
condition that, if, when and to the extent that the independent legal counsel
determines that Executive is not permitted to be so indemnified, the Company
shall be entitled to be reimbursed by Executive (who hereby agrees to reimburse
the Company) for all such amounts theretofore paid. If Executive has commenced
legal proceedings (either before or after the determination by independent
legal counsel) in a court of competent jurisdiction to secure a determination
that Executive may be indemnified under this Agreement or otherwise, any
determination made by the independent legal counsel that Executive is not
permitted to be indemnified shall not be binding, and Executive shall not be
required to reimburse the Company for any advancement of Expenses and shall
continue to be entitled to the advancement of Expenses until a final judicial
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or lapsed). If there has been no determination by
the independent legal counsel or if the independent legal counsel determines
that Executive is not permitted to be indemnified in whole or in part,
Executive shall have the right to commence

 

22

 

litigation
in any court in the states of Colorado or Delaware having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
independent legal counsel or any aspect thereof, and the Company hereby consents
to service of process and to appear in any such proceeding.

 

10. Remedies. The right to indemnification or
advancement of Expenses as provided by this Agreement shall be enforceable by Executive
in any court of competent jurisdiction if the Company denies such request, in
whole or in part, or if no disposition thereof is made within the 30-day period
referred to above in Paragraph 9. Unless otherwise required by law, the burden
of proving that indemnification is not appropriate shall be on the Company. Neither
the failure of the Company to have made a determination prior to the
commencement of such action that indemnification is proper in the circumstances
because Executive has met the applicable standard of conduct, nor an actual
determination by the Company pursuant to Paragraph 9 that Executive has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that Executive has not met the applicable standard of conduct.
Executive’s expenses (of the type described in the definition of “Expenses” in
Paragraph 2(c)) reasonably incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any such
Proceeding shall also be indemnified by the Company.

 

11. Partial Indemnification. If Executive is
entitled under any provision of this Agreement to indemnification by the
Company for some or a portion of the Expenses, judgments, fines, penalties or
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with any Proceeding but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Executive for the portion of
such Expenses, judgments, fines, penalties or amounts paid in settlement to
which Executive is entitled.

 

12. Subrogation. In the event of any payment under
this Agreement, the Company shall be subrogated to the extent of such payment
to all of the rights of recovery of Executive, who shall execute all papers
required and take all action necessary to secure such rights, including

 

23

 

execution
of such documents as are reasonably necessary to enable the Company to bring
suit to enforce such rights.

 

13. Term of Indemnification. The Company’s
agreements and obligations under this Agreement shall continue during the
period Executive is a director or officer of the Company, and shall continue
thereafter so long as Executive shall be subject to any possible claim or
proceeding by reason of Executive’s service in such capacity. Executive’s
rights under this Agreement shall inure to the benefit of Executive’s heirs, executors,
and administrators.

 

14. Officer and Director Liability Insurance. In the
event the Company’s Directors and Officers Insurance terminates or the scope or
amount of coverage of the Company’s Directors and Officers Insurance be reduced
from the scope and coverage in effect during the first year of the Agreement,
the Company agrees to give Executive prompt notice thereof and to hold harmless
and indemnify Executive to the fullest extent permitted pursuant to this
Agreement and/or by applicable law to the full extent of the coverage that is
in effect during the first year of this Agreement.

 

15. Indemnification Hereunder Not Exclusive. The
indemnification and advancement of Expenses provided by this Agreement shall
not be deemed exclusive of any other rights to which Executive may be
entitled under the Corporate Documents, any agreement, any vote of stockholders
or disinterested directors, the General Company Law of Delaware, any other law
(common or statutory), or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office for the Company.
Nothing contained in this Agreement shall be deemed to prohibit the Company
from purchasing and maintaining insurance, at its expense, to protect itself or
Executive against any expense, liability or loss incurred by it or him in any
such capacity, or arising out of his status as such, whether or not Executive
would be indemnified against such expense, liability or loss under this
Agreement; provided that the Company shall not be liable under this Agreement
to make any payment of amounts otherwise indemnifiable hereunder if and to the
extent that Executive has otherwise actually received such

 

24

 

payment
under any insurance policy (whether arising from an insurance policy provided
to the Company, a subsidiary, a parent, or any other insurance policy),
contract, agreement or otherwise.

 

16. Attorneys’ Fees. 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.

 

17. Merger, Consolidation, or Change of Control. In
the event that the Company shall be a constituent company in a consolidation or
merger, whether the Company is the resulting or surviving company or is
absorbed, or if there is a Change of Control, Executive shall stand in the same
position under this Agreement as Executive would have with respect to the
Company if its separate existence had continued or if there had been no Change
of Control.

 

18. Savings Clause. Notwithstanding any other
provision of this Agreement, if the indemnification provisions under this
Agreement 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.

 

19. Modification and Waiver. Notwithstanding any
other provision of this Agreement, the indemnification provisions in this Article V
of this Agreement may be amended from time to time to reflect changes in
Delaware law or for other reasons.

 

20. 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:

 

25

 

(a)                                  if to Executive, to:

 

(b)                                 if to the Company, to:

 

Teton Energy Corporation

410 17th Street – Suite 1850

Denver, CO 
80202

Attn: Chairman, Compensation Committee

 

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

 

21. 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.

 

 

	
  /s/ James J. Woodcock

  	
   

  	
  /s/ Andrew M. Schultz

  	
   

  
	
  Teton Energy Corporation

  	
  Executive

  
	
  By:

  	
  James J. Woodcock

  	
   

  
	
  Its:

  	
  Director &
  Chairman, Compensation

  	
   

  
	
   

  	
  Committee

  	
   

  
					

 

26

 

EXHIBIT A

 

List of Outside Activities

Andrew M. Schultz

 

	
  Company/Project

  Name

  	
   

  	
  Nature of Business

  	
   

  	
  Date Hired or

  Commenced

  Involvement

  	
   

  	
  Position

  	
   

  	
  Compensation

  	
   

  	
  Annual Time Commitment,

  (time away from office)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

Dated:  April 1, 2006

 

Initials:   Executive: 
            Company: 
             

 

 

Teton Energy Corporation • 410 17th
Street, Suite 1850 • Denver, CO 80202 • Tel: 303-565-4600

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