Filed by Automated Filing Services Inc. (604) 609-0244 - Terax Energy, Inc. - Exhibit 10.7






Exhibit 10.5 

 EXECUTIVE EMPLOYMENT AGREEMENT

                THIS
  EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is made as
  of the May 27, 2005 but effective the 1st day of June, 2005 (the
  “Effective Date”) by and between Terax Energy, Inc. (the "Company")
  and J. William Rhea, IV (the "Executive"). 

                WHEREAS,
  the Company desires to employ the Executive in an executive capacity, and Executive
  desires to accept such employment, upon the terms, conditions and for the consideration
  hereinafter set forth. 

                NOW
  THEREFORE, in consideration of theses premises and the mutual covenants
  and obligations contained herein, the Company and the Executive agree as follows:


                1.       
  Employment Period. The Company hereby agrees to employ the Executive,
  and the Executive hereby agrees to become an employee of the Company, subject
  to the terms and conditions of this Agreement, for the period commencing on
  the Effective Date and ending on the second anniversary of such date (the "Employment
  Period").

                2.       
  Terms of Employment. (a) Position and Duties. (i) During the Employment
  Period, the Executive shall be employed as the senior officer of the Company,
  and hold the position of Chief Executive Officer of the Company, reporting only
  to the Board of Directors (the “Board”) of the Company. The Executive
  will also hold such additional positions as determined by the Board, provided
  such determination is consistent with the Company’s then current financial
  situation. In addition, at all times during the Employment Period the Company
  shall cause the Executive to be nominated to serve on the Board as full member
  thereof.

                (ii)       
  During the Employment Period, excluding any periods of vacation, sick leave
  and other time-off to which the Executive is entitled under this Agreement or
  applicable Company policies, the Executive agrees to devote substantially all
  of his attention and time to the business and affairs of the Company and, to
  the extent necessary to discharge the responsibilities of the Executive, use
  the Executive’s reasonable best efforts to perform faithfully and efficiently
  such responsibilities. It shall not be a violation of this Agreement during
  the Employment Period for the Executive, and the Executive is expressly permitted,
  to spend a reasonable amount of time during normal business hours of the Company
  (including out-of-town travel) (A) serving on or with corporate, civic or charitable
  boards, committees and groups, and (B) delivering lectures, accepting and fulfilling
  speaking engagements, teaching at educational institutions and seminars, and
  writing or publishing papers, articles or books, provided that such services
  are consistent with the interests of the Company and do not interfere with the
  Executive’s obligations to the Company hereunder. 

                (iii)      
  During the Employment Period, except for out-of-town travel and meetings, the
  Executive's duties shall be performed primarily at the location of the Company’s
  principal corporate office which is to be located in Austin, Texas. 

                (b)       
  Salary. During the Employment Period, the Executive shall receive an
  annual salary (the "Annual Salary"), which shall be paid in equal installments
  in accordance with the Company's standard policy regarding payment of compensation
  to executives, but no less frequently than monthly. The amount of the Annual
  Salary shall be Two Hundred and Seventy-Five Thousand United States Dollars
  ($275,000). 

	
Terax Energy, Inc. 
		
J. William Rhea, IV 
	
	 

		
Employment Agreement 
	







                (c)       
  Bonuses. In addition to Annual Salary, the Executive may be awarded for
  each fiscal year of the Employment Period an annual bonus (the "Annual Bonus")
  of up Eighty-Two Thousand Five Hundred United States Dollars ($82,500) as
  determined either by: (i) the unanimous consent of the Board; or (ii) the consent
  of a majority of the Board and based upon the written recommendation of a professional
  compensation consultant as selected by the Board with due consideration being
  given to whether the Company has met the Performance Milestones as those terms
  are defined in the Management Stock Pool Agreement to be entered into between
  the Company and its senior management (such determination, by unanimous or majority
  consent, being referred to herein as the “Compensation Determination Method”).
  For greater certainly, the Executive must abstain from voting on any of the
  preceding resolutions. The Annual Bonus shall be determined and awarded each
  year within thirty (30) days of the filing of the Company’s Annual Report
  with the Securities and Exchange Commission. 

                (d)       
  Election. The Executive may, in his sole discretion, elect (the “Bonus
  Election”) to be paid the Annual Bonus in cash or in shares of the Company’s
  Common Stock (or a combination thereof), provided that the Executive has given
  notice of the Bonus Election not less than ten (10) and not more that twenty
  (20) days after the date on which the Annual Bonus is determined and awarded.
  In the event that the Executive does not make any Bonus Election the Annual
  Bonus shall be paid in cash. The number of shares of the Company’s Common
  Stock to be issued to the Executive shall be equal to the amount of the Annual
  Bonus to be paid in Common Stock divided by seventy-five percent (75%) of the
  average closing price of the Company’s Common Stock (on the most senior
  exchange on which the Common Stock is quoted) for the thirty (30) day period
  prior to the receipt by the Company of notice of the Bonus Election. 

                (e)       
  Benefits. During the Employment Period, the Executive and/or the Executive's
  family, as the case may be, shall be eligible for participation in and shall
  receive all benefits and privileges under any benefit, welfare, savings and
  retirement, plans, practices, policies and programs provided by the Company
  and its affiliated companies (including, without limitation, medical, prescription,
  dental, disability, salary continuance, employee life, group life, accidental
  death and travel accident insurance, 401k and other plans and programs). 

                (f)       
  Expenses. During the Employment Period the Executive shall be entitled
  to receive prompt reimbursement for all reasonable expenses and costs incurred
  by the Executive in accordance with the Company’s standard policies, practices
  and procedures.

                (g)       
  Vacation. During the Employment Period the Executive shall be entitled
  to paid vacation (“Vacation”) each calendar year of twenty (20)
  days beginning with the year of the Effective Date. 

                3.       
  Termination of Employment. (a) Death. The Executive’s employment
  shall terminate automatically upon the Death of the Executive during the Employment
  Period. For purposes of this Agreement, “Death” shall be deemed
  to have occurred on the date the Executive is certified to be dead by the government
  agency or person having competent jurisdiction over such certification, unless
  the Executive’s legal representative shall contest the certification through
  a court proceeding, in which case the court’s determination shall control.


                (b)       
  Disability. If the Company determines in good faith that the Disability
  of the Executive has occurred during the Employment Period (pursuant to the
  definition of Disability set forth below), it may give to the Executive written
  notice of its intention to terminate the Executive's employment. In such event,
  the Executive's employment with the Company shall terminate effective on the
  30th day after receipt of such notice by the Executive or his legal representative
  (the "Disability Effective 

	
Terax Energy, Inc. 
		 2	
J. William Rhea, IV 
	
	 

		 

		
Employment Agreement 
	










 Date"), unless within the 30 days after such receipt, the
  Executive shall have begun performance of the Executive's duties. For purposes
  of this Agreement, “Disability” shall mean the Executive has discontinued
  performing his duties for 60 consecutive business days due to incapacity due
  to mental or physical illness. 

                (c)       
  Cause. The Company may terminate the Executive's employment during the
  Employment Period for Cause. "Cause" shall include: 

                (i)       
  the Executive becoming charged with a felony offence; 

                (ii)      
  the Board being presented with substantive evidence of drug, alcohol or substance
  abuse by the Executive; and 

                (iii)     
  any breach by the Executive of his duties or obligations hereunder, provided
  that if such breach is “cureable” the Company shall be required
  to give the Executive notice of such breach and the Executive shall be required,
  within fourteen (14) days following delivery of such notice, to cure such breach
  or commence proceedings to cure such breach by appropriate performance and the
  breach must be cured without undue delay. 

                For
  the purposes of this Section 3(b) a “cureable” breach shall not
  include any breach of this Agreement resulting from: 

                (i)
         fraud by the Executive against the
  Company; 

                (ii)
        a breach by the Executive of the provisions
  of Section 6 of this Agreement; 

                (iii)     
  the intentional misappropriation of a corporate opportunity of the Company by
  the Executive for his direct or indirect personal benefit; or 

                (iv)
        willful or intentional failure to obey the
  instructions of the Board consistent with his duties hereunder. 

                (d)       
  Good Reason. The Executive's employment may be terminated by the Executive
  for Good Reason. For the sole and exclusive purposes of this Agreement, "Good
  Reason" shall mean: 

                (i)       
  the alteration or diminution of the Executive's position which results in a
  violation or diminution of the rights of the Executive under Section 2(a) of
  this Agreement, excluding any acts or omissions that are isolated, insubstantial
  or inadvertent and which are remedied by the Company promptly after receipt
  of notice thereof given by the Executive; or 

                (ii)      
  any failure by the Company to pay the amounts required under or otherwise comply
  with any of the provisions of Sections 2(b), 2(c) or 2(f) of this Agreement
  (provided that the Company has sufficient funds available to make such payments),
  other than an isolated, insubstantial or inadvertent failure which is remedied
  by the Company promptly after receipt of notice thereof given by the Executive.


                (e)       
  Expiration. The Executive's employment shall terminate at the end of
  the Employment Period. 

                (f)       
  Notice of Termination. Any termination of employment by the Company or
  by the Executive shall be communicated by Notice of Termination to the other
  party hereto. For purposes of 

	 Terax Energy, Inc.  	 3	 J. William Rhea, IV  
	  	  	 Employment Agreement  










 this Agreement, a "Notice of Termination" means a written
  notice which (i) indicates the specific termination provision in this Agreement
  relied upon, (ii) to the extent applicable, sets forth in reasonable detail
  the facts and circumstances claimed to provide a basis for termination of the
  Executive's employment under the provision so indicated, and (iii) if the Date
  of Termination (as defined below) is other than the date of receipt of such
  notice, specifies the termination date (which date shall be not more than thirty
  days after the giving of such notice). The failure by the Executive or the Company
  to set forth in the Notice of Termination any fact or circumstance which contributes
  to a showing of Good Reason or Cause shall not waive any rights of the Executive
  or the Company, respectively, hereunder or preclude the Executive or the Company,
  respectively, from asserting such fact or circumstance in enforcing the Executive's
  or the Company's rights hereunder. 

                (g)       
  Date of Termination. For purposes of this Agreement, “Date of Termination”
  means (i) if the Executive’s employment is terminated by the Company or
  by the Executive, the date of receipt of the Notice of Termination or any later
  date specified therein, as the case may be, (ii) if the Executive's employment
  is terminated by reason of Death or Disability, the Date of Termination shall
  be the date of Death of the Executive or the Disability Effective Date, as the
  case may be, and (iii) if the Executive's employment is terminated by reason
  of the expiration of the Employment Period, the Date of Termination shall be
  the last day of the Employment Period. 

                4.       
  Obligations Upon Termination. (a) Good Reason; Other Than for Cause,
  Death, Disability or Expiration. If, during the Employment Period,
  the Company shall terminate the Executive's employment other than for: (i) Cause,
  (ii) Death, (iii) Disability, or (iv) the expiration of the Employment Period;
  or if the Executive shall terminate his employment for Good Reason, the Company
  shall pay to the Executive the following amounts: 

                (i)       
  the sum of (1) the Annual Salary through the Date of Termination to the extent
  not theretofore paid, (2) any compensation previously deferred by the Executive
  (together with any accrued interest or earnings thereon), and (3) the prorata
  amount of the Annual Salary applied to any accrued but unused Vacation days
  of the Executive through the Date of Termination; in each case to the extent
  not theretofore paid (the sum of the amounts described in the foregoing clauses
  (1), (2), and (3) shall be hereinafter referred to as the “Accrued Obligations”);
  and 

                (ii)      
  the lesser of (X) the Annual Salary, prorated for a three (3) month period,
  and (Y) the amount of the Annual Salary from the Date of Termination to the
  end of the Employment Period (the “Severance Payment”), in both
  cases paid monthly over the period (the “Severance Period”) provided
  that, in the event that the Executive secures other employment or office during
  the Severance Period, the Executive agrees to remit to the Company the difference
  (if any) between the Severance Payment and the compensation received by the
  Executive from that other office or employment. Notwithstanding the preceding,
  the Executive agrees that, during the Severance Period, he will not, directly
  or indirectly, compete with the Company unless he notifies the Company of this
  fact, in which case the Company may cease to pay the Severance Payment to the
  Executive; 

                (iii)     
  all unvested contributions to any savings, retirement or other plans or programs
  benefiting the Executive and/or his family shall immediately become 100% vested,
  and all such plans and programs applicable to the Executive shall be automatically
  amended and reformed as, and the Company shall take all actions which are, necessary,
  appropriate or reasonable to accommodate and give effect to this clause; and


                (iv)      
  to the extent applicable and not theretofore paid or provided, the Company shall
  timely pay or provide to the Executive any other amounts or benefits that have
  accrued or which are required 

	 Terax Energy, Inc.  	 4	 J. William Rhea, IV  
	  	  	 Employment Agreement  










 to be paid or provided or which the Executive and/or his family
  is eligible to receive under Section 2(e) hereof, or any applicable plan, program,
  policy or practice or contract or agreement of the Company and its affiliated
  companies (such benefits shall be hereinafter referred to as the “Other
  Benefits”); 

                (b)       
  Death or Disability. If the Executive's employment is terminated by reason
  of the Executive's Death or Disability during the Employment Period, this Agreement
  shall terminate without further obligations to the Executive's estate or legal
  representatives under this Agreement, except that (i) the Company shall pay
  all Accrued Obligations in a lump sum in cash within 30 days of the Date of
  Termination, (ii) the Company shall timely pay and provide the Other Benefits
  to the extent applicable or theretofore unpaid. 

                (c)       
  Cause or Other than for Good Reason. If the Executive's employment shall
  be terminated for Cause during the Employment Period, or if the Executive resigns
  or voluntarily terminates his employment during the Employment Period, excluding
  a termination for Good Reason: (I) this Agreement shall terminate without further
  obligations to the Executive, except that the Company shall pay to the Executive
  the following amounts: 

                (i)       
  the Accrued Obligations through the Date of Termination to the extent not theretofore
  paid; and 

                (ii)       
  the Company shall timely pay and provide the Other Benefits to the extent applicable
  or theretofore unpaid. 

                (d)       
  Change of Control. In the event of a Change of Control (as hereinafter
  defined), the Executive shall have the option (but not the obligation) to terminate
  this Agreement, and upon the exercise of such option by the Executive the Company
  shall pay to the Executive the following amounts: 

                (i)       
  the Accrued Obligations through the date of the Change of Control to the extent
  not theretofore paid; and 

                (ii)      
  an amount equal to the Annual Salary (the “Change of Control Payment”)
  paid monthly over the twelve month period following the Change of Control provided
  that, in the event that the Executive secures other employment or office during
  such twelve month period, the Executive agrees to remit to the Company the difference
  (if any) between the Change of Control Payment and the compensation received
  by the Executive from that other office or employment. Notwithstanding the preceding,
  the Executive agrees that, during such twelve month period, he will not, directly
  or indirectly, compete with the Company unless he notifies the Company of this
  fact, in which case the Company may cease to pay the Change of Control Payment
  to the Executive; 

                (iii)     
  all unvested contributions to any savings, retirement or other plans or programs
  benefiting the Executive and/or his family shall immediately become 100% vested,
  and all such plans and programs applicable to the Executive shall be automatically
  amended and reformed as, and the Company shall take all actions which are, necessary,
  appropriate or reasonable to accommodate and give effect to this clause; and


                (iv)      
  to the extent applicable and not theretofore paid or provided, the Company shall
  timely pay or provide to the Executive any Other Benefits; 

	 Terax Energy, Inc.  	 5	 J. William Rhea, IV  
	  	  	 Employment Agreement  







        For the purposes
  of this Section 4(d), “Change of Control” means:

                (i)       
  The acquisition by any individual, entity or group (within the meaning of Section
  13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
  "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of
  Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (i)
  the then outstanding shares of common stock of the Company (the “Outstanding
  Company Common Stock”), or (ii) the combined voting power of the then
  outstanding voting securities of the Company entitled to vote generally in the
  election of directors (the "Outstanding Company Voting Securities"); provided,
  however, that the following acquisitions shall not constitute a Change of Control:
  (i) any acquisition directly from the Company, (ii) any acquisition by the Company,
  (iii) any acquisition by any employee benefit plan (or related trust) sponsored
  or maintained by the Company or any corporation controlled by the Company, or
  (iv) any acquisition by any corporation pursuant to a transaction which complies
  with the following clause (ii); or 

                (ii)
        The approval by the shareholders of the
  Company of a reorganization, merger, share exchange or consolidation (a "Business
  Combination"), in each case, unless, following such Business Combination, all
  or substantially all of the individuals and entities who were the beneficial
  owners, respectively, of the Outstanding Company Common Stock and Outstanding
  Company Voting Securities immediately prior to such Business Combination beneficially
  own, directly or indirectly, more than 50% of, respectively, the then outstanding
  shares of common stock and the combined voting power of the then outstanding
  voting securities entitled to vote generally in the election of directors, as
  the case may be, of the corporation resulting from such Business Combination
  (including, without limitation, a corporation which as a result of such transaction
  owns the Company through one or more subsidiaries); or 

                (iii)
       The approval by the shareholders of the Company
  of (i) a complete liquidation or dissolution of the Company, or (ii) the sale
  or other disposition of all or substantially all of the assets of the Company
  unless, following such sale or other disposition more than 50% of, respectively,
  the then outstanding shares of common stock of such corporation and the combined
  voting power of the then outstanding voting securities of such corporation entitled
  to vote generally in the election of directors is then beneficially owned, directly
  or indirectly, by all or substantially all of the individuals and entities who
  were the beneficial owners, respectively, of the Outstanding Company Common
  Stock and Outstanding Company Voting Securities immediately prior to such sale
  or other disposition.

                (e)       
  Expiration of the Employment Period. If the Executive's employment is
  terminated by reason of the expiration of the Employment Period, this Agreement
  shall terminate without further obligations to the Executive.

                5.       
  Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
  limit the Executive's continuing or future participation in any plan, program,
  policy or practice provided by the Company or any of its affiliated companies
  for which the Executive may qualify, nor shall anything herein limit or otherwise
  affect such rights as the Executive may have under any contract or agreement
  with the Company or any of its affiliated companies. Amounts which are vested
  benefits or which the Executive is otherwise entitled to receive under any plan,
  policy, practice or program of or any contract or agreement with the Company
  or any of its affiliated companies at or subsequent to the Date of Termination
  shall be payable in accordance with such plan, policy, practice or program or
  contract or agreement except as explicitly modified by this Agreement. 

                6.       
  Confidential Information. The Executive shall hold in a fiduciary capacity
  for the benefit of the Company all secret or confidential information, knowledge
  or data relating to the Company or 

	 Terax Energy, Inc.  	 6	 J. William Rhea, IV  
	  	  	 Employment Agreement  










 any of its affiliated companies, and their respective businesses,
  which shall have been obtained by the Executive during the Executive's employment
  by the Company or any of its affiliated companies and which shall not be or
  become public knowledge (other than by acts by the Executive or representatives
  of the Executive in violation of this Agreement). After termination of the Executive's
  employment with the Company, the Executive shall not, without the prior written
  consent of the Company or as may otherwise be required by law or legal process,
  communicate or divulge any such information, knowledge or data to anyone other
  than the Company and those designated by it.

                7.       
  Successors. (a) This Agreement is personal to the Executive and without
  the prior written consent of the Company shall not be assignable by the Executive
  otherwise than by will or the laws of descent and distribution. This Agreement
  shall inure to the benefit of and be enforceable by the Executive’s estate,
  heirs, beneficiaries and legal representatives. 

                (b)       
  This Agreement shall inure to the benefit of and be binding upon the Company
  and its successors and assigns. 

                8.       
  Miscellaneous. (a) This Agreement shall be governed by and construed
  in accordance with the laws of the State of Texas, without reference to principles
  of conflict of laws. The captions of this Agreement are not part of the provisions
  hereof and shall have no force or effect. This Agreement contains the complete
  and entire agreement between the parties hereto with respect to the matters
  contained herein, and may not be amended or modified otherwise than by a written
  agreement executed by the parties hereto or their respective successors and
  legal representatives expressly written and executed for such purpose. 

                (b)
         All notices and other communications
  required hereunder to be in writing shall be given by two or more of the following
  methods: (i) hand delivery to the other party, (ii) commercial courier or mail
  service, or (iii) registered or certified US mail, return receipt requested,
  postage prepaid; and in the case of the Company shall be addressed to the Company’s
  Registered Agent and the Company’s Secretary at the Company’s principal
  corporate office, and in the case of the Executive shall be addressed to the
  Executive’s office at the Company and the Executive’s latest primary
  residence as identified in the records of the Company, or to such other address
  as either party shall have furnished to the other in writing in accordance herewith.
  Notice and communications hereunder shall be effective, when delivered on a
  businesses day on the date of delivery, and when delivered on a day other than
  a business day on the next following business day. 

                (c)       The
  invalidity or unenforceability of any provision of this Agreement shall not
  affect the validity or enforceability of any other provision of this Agreement.


                (d)
         The Company may withhold from any
  amounts payable under this Agreement such Federal, state, local or foreign taxes
  as shall be required to be withheld pursuant to any applicable law or regulation.


                (e)
  The Executive's or the Company's failure to insist upon strict compliance with
  any provision hereof or any other provision of this Agreement or the failure
  to assert any right the Executive or the Company may have hereunder shall not
  be deemed to be a waiver of such provision or right or any other provision or
  right of this Agreement. 

	 Terax Energy, Inc.  	 7	 J. William Rhea, IV  
	  	  	 Employment Agreement  







                IN
  WITNESS WHEREOF, the parties have executed this Agreement to be effective
  as of the 1st day of June, 2005. 


TERAX ENERGY, INC. 

	By: 	 /s/ Bill Chester  	 /s/ J. William Rhea, IV  
	 	 Bill Chester, President  	 J. William Rhea, IV  




 Execution Date: May 27, 2005 

 

 

	 Terax Energy, Inc.  	 8	 J. William Rhea, IV  
	  	  	 Employment Agreement