Exhibit 10.3
AGREEMENT
BETWEEN
TETON PETROLEUM COMPANY
AND
KARL F. ARLETH
(Executive)
This agreement, dated as of May 1, 2003 (the "Agreement"),
is entered into
by and between Teton Petroleum Company, a Delaware
corporation (the "Company"),
and Karl F. Arleth ("Executive")
(collectively,
the "Parties," individually, a
"Party").
Whereas,
the Executive has been providing services for the Company under a
consulting agreement as its President and Chief Executive Officer;
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
stock
option
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:
ARTICLE ONE
EMPLOYMENT AGREEMENT
--------------------
1.1
Title and Duties.
----------------
(i) Executive shall serve as the President and Chief Executive
Officer
of the Company.
(ii) Executive's
employment shall be for an initial term of three (3)
years,
commencing
from May 1, 2003. The term of this
Agreement
shall be
automatically
extended on the day after the second year anniversary of the
date of this Agreement,
and on each 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 Board of Directors (the "Board")
and in his capacity as an officer of the Company
shall perform such duties
and services as may be appropriate and as are assigned to him by
the Board.
During
the
term
of
this
Agreement,
Executive
shall,
subject
to the
direction of the Board of Directors of the Company,
oversee and direct the
operations of the Company, and shall perform such duties as are
customarily
performed by the
President
and CEO of a company such as the Company or as
are otherwise
delegated to him from time to time by the Company's Board or
such other
duties as may from time to time be assigned to him by the Board
of Directors.
(iv) During the term of this Agreement,
except as otherwise
approved
by the Board of
Directors
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,
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 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
(other
than to the
Company's
Board of
Directors
or to
others
as
required,
in his judgment, in the due performance of his duties under
this Agreement) 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 $180,000,
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
Board annually for adequacy.
1.3
Cash Bonus.
----------
The Executive
shall be eligible for any cash bonus
component
that may be
approved by the Board from time to time.
1.4
Options.
-------
Executive shall receive
options,
including
incentive stock options under
the Internal Revenue Code of 1986, as amended,
and non-qualified stock options,
to purchase
Common Stock (valued as
authorized
in the Company's
Stock Option
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 stock options,
stock
appreciation
rights, and other
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 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
24 months severance, which may be payable in a lump sum or in equal
monthly
installments,
at the
Company's
option;
(b)
all
stock
options,
stock
appreciation
rights and restricted stock shall
immediately
vest; (c) all
stock
options
and stock
appreciation
rights
shall be payable in Common
Stock;
and (d) the Company shall pay, on a grossed-up basis (as determined
in the same manner as under
paragraph 1.7 hereof) 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.
(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,
or any
failure
of the Board or the
shareholders,
as the case may be, to
re-elect
Executive or to nominate him for election by the shareholders to,
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
January 1, 2005,
Executive
may terminate
this Agreement (a) immediately 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
stock
options,
stock
appreciation rights, 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 stock options for the remainder
of their term.
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
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.
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) The Company shall pay, on a grossed-up basis for federal,
state,
and local income
taxes,
the amount of any excise tax payable by Executive
as a
result
of
any
payments
triggered
by
this
Agreement,
or
other
compensation
agreements
between Executive and the Company,
or any of its
subsidiaries.
(iii) Subsequent to the Company's
raising in the aggregate
financing
of at least $10,000,000 and acquiring an operating
asset(s)
generating at
least
$10,000,000 in annual
revenue,
the Company shall provide term life
insurance
coverage on Executive's
life providing at least $1.0 million in
death
benefits
payable
to
Executive's
designated
beneficiaries.
At
Executive's
election,
such policy shall be transferable to Executive,
or
his designee, after any termination of employment hereunder.
(iv) 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.
(v) Executive shall be entitled to take such
vacations,
with pay, as
are customary
among other chief
executive
officers of
organizations
of
similar size and nature.
Beginning in 2004, Executive shall be entitled to
four (4) weeks per calendar year, which vacation level shall be
reviewed by
the
compensation
committee of the
Company's
Board from time to time. No
more
than
1.5
times
(1.5x)
Executive's
authorized
annual
vacation
allocation
may be accrued,
at any given time. In the event that Executive
has reached his maximum authorized
vacation
allocation,
accrual will not
re-commence
until
Executive
uses some of his paid
vacation
credit
and
thereby brings the balance below his maximum.
Accrued paid vacation credit
forfeited because of an excess balance can not be retroactively
reapplied.
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.
(vi) 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.
(vii) After it has raised in the aggregate at least
$10,000,000
in a
subsequent financing, the Company shall use its best efforts to
establish a
health
insurance
plan.
In
the
interim,
the
Company
shall
reimburse
Executive
for the premiums
associated
with
Executive's
current
health
insurance
plan, if applicable.
In the event that Executive
elects not to
participate
in the
Company's
health
plan,
he shall be
entitled
to an
appropriate gross up in his compensation for so long as Executive
declines
to participate in the Company-sponsored plan.
(viii)
In the
event
that
Executive
is
required
to move from his
primary
residence,
then
Executive
shall
be
provided
with
relocation
assistance as provided below:
(a) The Company will pay the costs, for Executive and his family,
of
house-hunting
trips and the cost of transporting
Executive,
his
spouse,
furniture,
household effects,
and vehicles,
to the area in
which the Company will be headquartered.
(b) The Company shall pay Executive's
travel,
temporary
living
expenses,
including housing,
whether hotel or apartment,
and meals,
during the period prior to
Executive's
move to the city in which the
Company will be headquartered.
(c)
The
Company
acknowledges
that,
as of the
date
of
this
Agreement, Executive's primary residence is in Silverthorne,
Colorado.
In order to induce
Executive to remain in the Company's
employ,
the
Company
agrees
to pay the
expenses
associated
with
the
lease on
Executive's Denver apartment, which expenses shall be coterminous
with
Executive's Base Salary.
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.
2.3
