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MANAGEMENT STOCK POOL AGREEMENT

Cash Management Agreement
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This Cash Management Agreement involves

TERAX ENERGY, INC.

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Title: MANAGEMENT STOCK POOL AGREEMENT
Governing Law: Texas     Date: 6/9/2005

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Filed by Automated Filing Services Inc. (604) 609-0244 - Terax Energy, Inc - Exhibit 10.1

Exhibit 10.1 

MANAGEMENT STOCK POOL AGREEMENT 

THIS AGREEMENT is dated for reference this 7th day of June, 2005 

AMONG: 

 

 

TERAX ENERGY, INC., a body corporate formed pursuant to the laws of the State of Nevada and having an office for business located at 9600 Great Hills Trail, Suite 150W, Austin Texas 78759

(the “Company”)

 

AND:

 

 

THE SHAREHOLDERS OF TERAX ENERGY, INC. listed in Schedule “A” hereto

(the “Shareholders”)

 

WHEREAS: 

 

A. 

The Company is primarily engaged in the business of locating, acquiring and  developing oil and natural gas properties; 

 

B. 

The Company’s common stock is registered under Section 15(d) of the Securities  Exchange Act of 1934, as amended (the “Exchange Act”) and the Company’s  common stock is quoted on the NASD "Bulletin Board” under the symbol “TXEI”; 

 

C. 

The shareholders of the Company own the shares of the Company’s common  stock as listed in Schedule “A” attached hereto and are duly appointed officers  and/or directors of the Company; 

 

D. 

In order to ensure that the management of the Company has the proper  incentives to enhance the Company’s performance, management of the  Company have agreed to the escrow, lock-up, performance criteria and return to  treasury provisions provided for herein. 

 

NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the premises and the mutual covenants, agreements, representations and warranties contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE 1
DEPOSIT OF SHARES INTO ESCROW

Each Shareholder covenants and agrees to and in favor of the Company that he or she shall cause the certificates representing the Shares to be deposited with Phillip A. Wylie, Esq. (the “Escrow Agent”) on and subject to the terms of the Management Stock Pool Escrow Agreement in the form attached hereto as Schedule “B”.

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ARTICLE 2
ESCROW TERMS

No Options, etc.

2.01 Each Shareholder covenants and agrees to and in favor of the Company that, for so long as the Shares issued to them hereunder are held in escrow pursuant to the terms hereof, they will not option, pledge, hypothecate or otherwise agree to transfer such Shares in any manner whatsoever.

Return to Treasury – Termination or Resignation

2.02 The Shares will be returned to the treasury of the Company as follows:

 

 

(a)     

in the event that a particular Shareholder who is an employee of the Company ceases to be an employee of the Company either by resignation or through termination by the Company for Cause (as that term is defined in the particular Shareholders’ employment agreement) on or before December 31, 2007 (the “Outside Date”), all of the Shares held in escrow on account of that particular Shareholder and not released to that particular Shareholder pursuant to section 2.03 hereof are to be returned to the treasury of the Company without consideration; and

 

 

(b)     

in the event that a particular Shareholder who is a director of the Company resigns as a director of the Company on or before the Outside Date, all of the Shares held in escrow on account of that particular Shareholder and not released to that particular Shareholder pursuant to section 2.03 hereof are to be returned to the treasury of the Company without consideration.

Release from Escrow- Performance Milestones

2.03 Any Shares not returned to treasury of the Company pursuant to section 2.02  hereof will be released from escrow as follows: 

 

 

(a)

in the event that the Company, as at December 31, 2005, has achieved both of the following performance milestones) 1/3 of the Shares deposited into escrow on account of that particular Shareholder are to be released to that Shareholder

 

 

 

(i)

the Company, based solely upon its audited financial statements for the year ended December 31, 2005, as filed with the Securities and Exchange Commission (the “2005 Statements”) has total proved oil, gas, and condensate reserves (“Total Proved Reserves”), as estimated by a competent third-party engineering firm, of not less than 3,515 million cubic feet of gas equivalent recoverable (“MMCFE”). For the purposes of this calculation and those to follow in this agreement, oil and condensate shall be converted to equivalent gas on the basis of the generally accepted accounting practice of one (1) barrel of oil or condensate per six (6) thousand cubic feet of gas (“MCF”), and

 

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(ii)     

the Company, as determined by the Company’s auditor in conjunction with the preparation of the 2005 Statements, has achieved, or should have achieved, an average MCF per day production rate for the thirty days immediately prior to December 31, 2005 of not less than 1,090 MCF per day. To the extent the Company did not achieve this threshold but was capable of doing so, as estimated by a competent third-party engineering firm, were it not for infrastructure considerations beyond the control of the Company, or for then prevailing market considerations, this threshold shall be deemed to have been met (the “Market Consideration Test”);

 

 

(b)