Exhibit 10.3

 

SEPARATION AGREEMENT AND RELEASE

 

This Separation Agreement and Release (this “Agreement”) is entered into by Cano
Petroleum, Inc., a Delaware corporation (the “Company”), Resaca
Exploitation, Inc., a Texas corporation (“Resaca”), and S. Jeffrey Johnson
(“Executive”) as of September 29, 2009.  The Company and Executive are
collectively referred to herein as the “Parties” and Resaca joins in this
Agreement solely for the purposes set forth in Section 3(b), Section 7, and
Section 27 and shall not be considered a “Party” for any other purpose.   This
Agreement cancels and supersedes all prior agreements relating to Executive’s
employment with the Company, except as provided in this Agreement.

 

RECITALS

 

WHEREAS, Executive is employed as the Chairman and Chief Executive Officer of
the Company under an Employment Agreement, dated January 1, 2006, as amended by
the First Amendment to the Employment Agreement between the Company and
Executive, dated May 31, 2008, and the Second Amendment to the Employment
Agreement between the Company and Executive, dated December 31, 2008 (as
amended, the “Employment Agreement”), under which Executive and the Company
agreed to certain terms and conditions of Executive’s employment with the
Company;

 

WHEREAS, because of his employment as a Company employee, Executive has obtained
intimate and unique knowledge of all Company business operations, current and
future plans, financial plans and other confidential and proprietary
information;

 

WHEREAS, the Company and Resaca anticipate entering into the Agreement and Plan
of Merger by and among the Company, Resaca and Resaca Acquisition Sub, Inc., a
Delaware corporation and a wholly-owned subsidiary of Resaca (the “Merger Sub”),
dated of even date herewith (the “Merger Agreement”), under which the Company
will merge with and into the Merger Sub (the “Merger”) and the Company will be
the surviving corporation and subsidiary of Resaca (the “Surviving Corporation”)
effective as of the Closing Date (as defined in the Merger Agreement);

 

WHEREAS, in connection with the Merger, the Parties have agreed that Executive’s
employment with the Company and all other officer and representative positions,
if any, held by Executive in the Company or any of its subsidiaries or
affiliates will terminate effective as of the Closing Date (which date shall be
referred to herein as the “Separation Date”); and

 

WHEREAS, the Parties desire to finally, fully and completely resolve all
disputes that now or may exist between them, including, without limitation,
those concerning Executive’s job performance and activities while employed with
the Company and his hiring, employment, and termination from employment with the
Company, and all disputes over benefits and compensation concerning his Company
employment, and without limitation, any disputes arising from the terms of
Executive’s employment as set forth in the Employment Agreement.

 

AGREEMENT TERMS

 

NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which the Parties acknowledge, the
Parties agree as follows:

 

1.             Termination of Executive’s Employment.  Executive’s employment
with the Company is terminated as of the Separation Date.  Executive agrees that
this Agreement supersedes any and all prior

 

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agreements with the Company and its subsidiaries and affiliates (including,
without limitation, the Employment Agreement), which terminate upon the
Separation Date.  Effective as of the Separation Date. Executive shall and
hereby does resign from all corporate, board and other offices and positions he
then holds with the Company and all of its affiliates.  As of the Separation
Date, Executive shall incur a separation from service from the Company and its
affiliates within the meaning of Section 409A of the Internal Revenue Code of
1986, as amended (“Section 409A”).  The Parties agree that, as of the Separation
Date, Executive, the Company and its subsidiaries and affiliates shall have no
further liabilities, obligations, or duties under such prior agreements,
including the Employment Agreement, except as provided in this Agreement. 
Notwithstanding any other provision of this Agreement, until the Separation
Date, Executive’s employment with the Company shall continue to be governed by
the terms, conditions and provisions of the Employment Agreement, which shall
continue in full force and effect until the Separation Date, including without
limitation, the provisions relating to Executive’s terms and conditions of
employment, salary, benefits, insurance (e.g., directors and officers
insurance), authority and responsibilities.

 

2.             Termination of this Agreement.  Notwithstanding any other
provision of this Agreement, if the Closing Date does not occur and the Merger
Agreement is terminated, this Agreement shall immediately terminate in full and
become null and void, with no Party having any rights or obligations under this
Agreement, and Executive shall retain any and all claims, rights, legal
obligations, authority, or power he possessed under any prior agreement,
including without limitation the Employment Agreement, bylaw, article of
incorporation, statute, or law prior to the date of this Agreement, or accruing
thereafter under the terms of such agreement, bylaw, article of incorporation,
statute, or law.

 

3.             Certain Payments and Benefits.

 

(a)           Accrued Obligations.  On or within six (6) days following the
Closing, the Company shall pay Executive for all (i) unpaid salary through the
Separation Date, and (ii) any accrued but unused vacation through the Separation
Date.  In the next regular payroll date of the Company immediately following the
Separation Date, the Company shall reimburse Executive for reasonable and
necessary business expenses incurred by Executive in accordance with his duties
and responsibilities through the Separation Date, if any, provided Executive
provides substantiating documentation for such expenses and such expenses are
reimbursable in accordance with the Company’s policies and procedures.  Except
as stated in this Agreement or as required by law, all other compensation and
benefits that relate to Executive’s employment with the Company, including any
benefits set forth in any policy or program, will cease as of the Separation
Date.

 

(b)           Separation Payment.  Subject to Executive’s consent to and
fulfillment of Executive’s obligations in this Agreement, and provided that
Executive does not revoke this Agreement under Section 24, the Company shall
pay, or cause to be paid, Executive severance pay equal to: (i) $1,290,288 in
cash if the Separation Date occurs on or before December 31, 2009 or $1,366,308
in cash if the Separation Date occurs on or after January 1, 2010; and (ii) the
number of whole shares of common stock, par value $0.01 per share, of Resaca
(“Resaca Common Stock”) with a Fair Market Value on the Separation Date equal to
$645,144 if the Separation Date occurs on or before December 31, 2009 or
$683,304 if the Separation Date occurs on or after January 1, 2010
(collectively, subsections (i), and (ii), the “Separation Payment”).  The
Separation Payment shall be made in one lump sum on the first Business Day
immediately following the date that is six (6) months and one (1) day following
the Separation Date. The Separation Payment shall not be treated as

 

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compensation under the Company’s 401(k) Plan or any other retirement plan. 
Executive recognizes and agrees that he is not otherwise entitled to the
Separation Payment, that the Separation Payment is in addition to anything
Executive is otherwise entitled to based on his employment relationship with the
Company, and that he will receive the Separation Payment only as a condition of
signing this Agreement and executing the additional waiver in accordance with
Sections 5 and 6. For purposes of this Section 3(b), “Fair Market Value” means,
as of a particular date, the closing sales price per share of Resaca Common
Stock on the AIM Market of the London Stock Exchange, or, if there was no such
sale reported on that date, on the last preceding date on which such a sale was
reported.  In addition, Executive’s options to purchase the Company’s common
stock and restricted shares of the Company’s common stock shall vest and become
nonforfeitable on the Separation Date in accordance with the terms and
conditions of the applicable award agreement for the same.

 

(c)           Indemnification Coverage.    To the fullest extent permitted by
applicable law, Executive shall be entitled to indemnification following the
Separation Date on the same terms as indemnification is provided by the Company
to other employees, officers, and directors through the Company’s Directors and
Officers insurance coverage and/or bylaws.  Such indemnification shall remain
effective after the Separation Date with respect to the actions or omissions of
Executive on or before the Separation Date.

 

(d)           Waiver of Additional Compensation or Benefits.  Executive’s
participation in and eligibility for any compensation, bonus, or benefits plans
or practices of the Company shall terminate on the Separation Date. 
Notwithstanding any other provision in this Agreement, nothing in this Agreement
shall affect (i) Executive’s vested right, if any, under the terms of such plans
or any other employee benefit plans maintained by the Company or Administaff
Companies II, L.P. or its affiliates (together “Administaff”) for the benefit of
the Company’s employees; or (ii) Executive’s right to continue or convert
coverage under such employee benefit plans, in accordance with the terms of
those plans and applicable law, including without limitation, Executive’s right
to elect continued insurance coverage in accordance with the Consolidated
Omnibus Budget Reconciliation Act (“COBRA”).  Except as otherwise provided in
this Agreement, Executive shall not be entitled to any additional compensation,
nor shall Executive be entitled to any benefits, payments or grants under any
benefit plan, severance plan or bonus or incentive program the Company or any of
its affiliates has established.  Executive agrees that the release in Section 5
covers any claims that arise before the date he signs this Agreement regarding
his compensation, bonuses, stock options or grants and any other benefits
Executive may or may not have received during the course of his employment
relationship with the Company and its subsidiaries and affiliates.

 

(e)           Medical Insurance Premiums.  In the event Executive timely
exercises his right to elect medical benefit continuation under COBRA, the
Company shall reimburse Executive for the difference between the cost of the
COBRA premiums paid by Executive during the first 12 months following the
Separation Date and the cost of premium payments that the Executive otherwise
would have been required to pay during the 12-month period in the event his
employment had not terminated.  The Company’s reimbursement of the COBRA
premiums for the first six months of

 

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COBRA coverage shall be paid on a monthly basis unless such monthly
reimbursement may not be made without adverse tax consequences to Executive
under Section 409A, in which case such reimbursement shall be made in a lump sum
on the first Business Day immediately following the date that is six (6) months
and one (1) day following the Separation Date. Thereafter, the Company shall
reimburse Executive on a monthly basis for the remaining six months during which
Executive maintains coverage under COBRA.

 

4.             Orderly Marketing Deed.  Executive agrees to execute an Orderly
Marketing Deed to be effective for the six (6) month period immediately
following the Separation Date with respect to all shares of common stock of the
Company, all shares of preferred stock of the Company, all shares of Resaca
Common Stock, all shares of any preferred stock of Resaca, and any other shares
of stock of the Company or Resaca owned by Executive as of the Closing Date in
the form attached hereto as Exhibit A.

 

5.             General Release and Waiver by Executive.  In consideration for
the Company’s payments in Section 3 and other valuable consideration specified
in this Agreement, Executive, on behalf of himself, his heirs, executors,
successors and assigns, and all persons or entities acting by, through, under or
in concert with any of them, irrevocably and unconditionally releases, waives,
and forever discharges the Company, Resaca, and the Surviving Corporation and
all of their parents, divisions, partnerships, joint ventures, subsidiaries,
affiliates, and related companies, and their present and former agents,
employees, officers, directors, partners, members, attorneys, stockholders, plan
fiduciaries, employee benefit committees, successors and assigns (collectively,
“Company Released Parties”), from any and all claims, demands, actions, causes
of action, costs, attorney fees, and all liability whatsoever, whether known or
unknown, fixed or contingent, which Executive has, had, or may ever have against
the Company Released Parties relating to or arising out of Executive’s
employment or separation from employment with the Company, from the beginning of
time and up to and including the date Executive executes this Agreement.  This
Agreement includes, without limitation, (i) law or equity claims; (ii) contract
(express or implied) or tort claims; (iii) claims for wrongful discharge,
retaliatory discharge, whistle blowing, libel, slander, defamation, unpaid
compensation, intentional infliction of emotional distress, fraud, public policy
contract or tort, and implied covenant of good faith and fair dealing;
(iv) claims arising under any federal, state, or local laws of any jurisdiction
that prohibit age, sex, race, national origin, color, disability, religion,
veteran, military status, sexual orientation, or any other form of
discrimination, harassment, or retaliation (including, without limitation, the
Age Discrimination in Employment Act, the Americans with Disabilities Act, the
ADA Amendments Act of 2008, Title VII of the 1964 Civil Rights Act, the Civil
Rights Act of 1991, the Civil Rights Acts of 1866 and/or 1871, 42 U.S.C.
Section 1981, the Rehabilitation Act, the Family and Medical Leave Act, the
Sarbanes-Oxley Act, the Employee Polygraph Protection Act, the Uniformed
Services Employment and Reemployment Rights Act of 1994, the Equal Pay Act, the
Lilly Ledbetter Fair Pay Act, the Texas Commission on Human Rights Act (and any
similarly named statute in the Texas Labor Code), the Texas Labor Code, or any
other federal, state, or local laws of any jurisdiction), (v) claims arising
under the Employee Retirement Income Security Act, and (vi) any other statutory
or common law claims related to Executive’s employment with the Company or the
separation of Executive’s employment with the Company.  This Agreement does not
affect, waive or release (a) any claim for breach or enforcement of this
Agreement; (b) any claim that may arise after the date this Agreement is signed
by Executive; (c) any claim for worker’s compensation benefits, or
(d) Executive’s vested rights, if any, under the terms of any employee benefit
plans maintained by the Company or Administaff for the benefit of Company
employees, including without limitation Executive’s entitlement to the funds
contained in Executive’s 401(k) Plan account with the Company.

 

6.             Additional Waiver and Release of Claims.  Executive agrees to
execute a Waiver and Release of Claims, in the form attached hereto as
Exhibit B  (the “Closing Date Waiver and Release”), on the Separation Date, to
irrevocably and unconditionally release, waive, and forever discharge the
Company

 

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Released Parties from any and all claims, demands, actions, causes of action,
costs, attorney fees, and all liability whatsoever against the Company Released
Parties relating to or arising out of Executive’s employment or separation from
employment with the Company, from the date of the execution of this Agreement
and up to and including the Separation Date.

 

7.             General Release and Waiver by the Company and Resaca.  In
consideration for Executive’s release and waiver, as set forth in the preceding
Sections 5 and 6, and other good and valuable consideration provided for in this
Agreement, the Company, Resaca and the Surviving Corporation (as defined in the
Merger Agreement), on behalf of itself and themselves and its and their
affiliated, related, subsidiary, predecessor or successor corporation or
businesses  (collectively “Company Releasing Parties”) hereby release, waive and
fully discharge Executive and his agents, attorneys, heirs, successors and
assigns (collectively “Executive Released Parties”) from any and all claims,
rights, demands, actions, obligations, liabilities, and causes of action of any
and every kind, nature, and character whatsoever, known or unknown, that the
Company Releasing Parties or any of them, may now have, may ever have had, or
may ever believe it has against the Executive Released Parties or any of them,
based upon any act or omission by the Executive Released Parties, or any of
them, prior to the date of execution of this Agreement by Executive, including,
but not limited to, any and all claims arising from or in any way related to
Executive’s employment by Company, the termination thereof, or any claims that
were raised, or could have been raised, prior to the execution of the Agreement,
whether based on tort, contract (express or implied), or any federal, state or
local law, statute or regulation.  This Agreement does not affect, waive or
release (a) any claim for breach or enforcement of this Agreement; (b) any claim
that may arise after the date this Agreement is signed by the Company and
Resaca; and (c) any claim for fraud, gross negligence, or intentional misconduct
by the Executive.

 

8.             No Admission of Liability.  This Agreement shall not in any way
be construed as an admission by the Company or any of its subsidiaries or
affiliates or Executive of any acts of wrongdoing or violation of any statute,
law, or legal right.

 

9.             Non-Disclosure and Confidentiality.  Executive agrees to abide by
the Company’s confidentiality policies and any agreement regarding
confidentiality that Executive has with the Company as of the date hereof and
through the Separation Date, including without limitation Section 9
(Confidential Information) of the Employment Agreement.  Executive further
acknowledges and agrees that during his Company employment, the Company and its
subsidiaries and affiliates (the “Company Group”) disclosed to Executive the
Company Group’s unique concepts, sales presentations, marketing programs,
marketing strategies, business practices, methods of operation, pricing
information, cost information, trademarks, licenses, technical information,
proprietary information, computer software programs, tapes and disks concerning
its operations systems, customer lists, customer names, account information,
customer leads, documents identifying past, present and future customers,
customer profile and preference data, electronically stored information, hiring
and training methods, investment policies, financial and other confidential,
proprietary and/or trade secret information concerning its operations and
expansion plans (“Confidential Information”).  The Confidential Information
includes, without limitation, information about the Company Group’s business,
proprietary, and technical information not known to others that could have
economic value to others if improperly disclosed.  Confidential Information also
means any information the Company Group discloses to Executive, either directly
or indirectly, in writing, orally or by inspection of tangible objects,
including, without limitation, information and technical data contained in the
Company Group’s manuals, booklets, publications and materials, equipment of
every kind and character, as well as documents, prototypes, samples, prospects,
inventions, product ideas, know-how, processes, plans (including, without
limitation, market plans and strategies), specifications, designs, techniques,
technology formulas, software, improvements, forecasts, and research.

 

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Confidential Information shall not include any information (a) in the public
domain, through no disclosure or wrongful act of Executive, to such an extent as
to be readily available to competitors; or (b) required to be disclosed by
Executive pursuant to applicable law or valid legal process (in which case,
Executive agrees to provide notice to the Company of such required disclosure,
if possible, before such disclosure, or if notice before such disclosure is not
possible, immediately following such disclosure).

 

Executive agrees that he will not at any time disclose to anyone, including,
without limitation, any person, firm, corporation, or other entity, or publish,
or use for any purpose, any Confidential Information, except as the Company
directs and authorizes.  Executive agrees that he shall take all reasonable
measures to protect the secrecy of and avoid disclosure and unauthorized use of
the Confidential Information and agrees to immediately notify the Company in the
event of any unauthorized use or disclosure of the Confidential Information. 
Additionally, if Executive is required to disclose any Confidential Information
by a court order, subpoena, or government directive, Executive shall immediately
notify the Company no later than two (2) days after Executive receives notice of
the court order, subpoena or government directive to allow the Company to seek a
protective order.

 

10.          Non-Disparagement.

 

(a)           Executive agrees that he will not, and he will use reasonable
efforts to cause his family members not to, directly or indirectly, disclose,
communicate, or publish any disparaging or defamatory information, written
communications, oral communications, electronic or magnetic communications,
writings, oral or written statements, comments, opinions, facts, or remarks, of
any kind or nature whatsoever (collectively, “Disparaging Information”),
concerning or regarding the Company Group, Resaca or any subsidiary of Resaca
(or any of their respective current or former officers, directors, or
employees).  Executive understands and acknowledges that this non-disparagement
clause prevents him from disclosing, communicating, or publishing, directly or
indirectly, any Disparaging Information concerning or related to the Company
Group, Resaca or any subsidiary of Resaca (or any of their respective current or
former officers, directors, or employees), including, without limitation,
information regarding businesses, customers or clients, proprietary or technical
information, documents, operations, inventions, trade secrets, product ideas,
technical information, know how, processes, plans (including, without
limitation, marketing plans and strategies), specifications, designs, methods of
operation, techniques, technology, formulas, software, improvements, internal or
external audits, internal controls, or any financial, marketing or accounting
information of any nature whatsoever.  Further, Executive acknowledges that in
executing this Agreement, he has knowingly, voluntarily, and intelligently
waived any free speech, free association, free press or First Amendment to the
United States Constitution (including, without limitation, any counterpart or
similar provision or right under the Texas Constitution) rights to disclose,
communicate, or publish Disparaging Information concerning or related to the
Company Group, Resaca or any subsidiary of Resaca (or any of their respective
current or former officers, directors, or employees).  Executive also
understands and agrees that he has had a reasonable period of time to consider
this non-disparagement clause, to review the non-disparagement clause with his
attorney, and to consent to this clause and its terms knowingly and voluntarily.
Executive’s obligations under this section  shall not (i) apply to private
statements by Executive to his immediate family members or tax, financial, or
legal advisors or (ii) prohibit truthful statements by Executive that are
required by law or valid legal process (in which case, Executive agrees to
provide notice to the Company of such law or legal process, if possible, before
making such statements, or if notice before making such statements is not
possible, promptly following such statements).

 

(b)           The Company and Resaca agree that they will not, directly or
indirectly, disclose, communicate, or publish any Disparaging Information
concerning or regarding Executive.  The

 

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Company and Resaca understand and acknowledge that this non-disparagement clause
prevents them from disclosing, communicating, or publishing, directly or
indirectly, any Disparaging Information concerning or related to the Executive. 
The Parties agree that for purposes of this Section, the Company’s and Resaca’s
obligation shall be limited to their respective members of the Board of
Directors and officers of the Company.  The Company’s obligations under this
Section shall not (i) apply to statements to Company officers, directors,
employees, tax advisors, financial advisors, or legal advisors or (ii) prohibit
truthful statements required by law or valid legal process.

 

(c)           Statements that “the Company and I mutually agreed to separate in
connection with the merger transaction” or similar words to that effect shall
not violate this Section.

 

11.          Non-Recruitment.  Executive agrees that for a period of one
(1) year following the Separation Date, he will not, without the Company’s or
Resaca’s prior written consent, directly or indirectly, either as a principal,
manager, agent, employee, consultant, officer, director, stockholder, partner,
investor or lender, or in any other capacity, and whether personally or through
other persons: solicit, call on, induce or attempt to solicit or induce, on
behalf of himself or any other person or entity, any employee of the Company
Group, Resaca or any subsidiary of Resaca to terminate his or her employment
relationship with any such company.

 

12.          Announcements.  Executive agrees that he will not discuss, and he
will use all reasonable efforts to cause his family members not to discuss, the
terms of this Agreement, the Merger Agreement or the circumstances of Executive’
s termination of employment with the Company with any third party, including,
without limitation, the press or the employees of the Company, except to the
extent (i) as agreed to, in writing, by the Company and Resaca, or (ii) as
required by law (in which case, Executive agrees to provide notice to the
Company of such required discussion, if possible, before the such discussion, or
if notice before the discussion is not possible, immediately following such
discussion).  Executive’s obligations under this Section shall not (a) apply to
private statements by Executive to his family members or tax, financial or legal
advisors or (b) prohibit truthful statements by Executive that are required by
law or valid legal process.  Furthermore, statements by Executive to third
parties that “the Company and I mutually agreed to separate in connection with a
merger transaction” or similar words to that effect shall not violate this
Section.

 

13.          Cooperation.  As a further material inducement to the Company to
make the Separation Payment described in this Agreement and for Executive to
accept same, Executive agrees to (a) provide his full cooperation, at the
Company’s request and at reasonable times and without unreasonable interference
with his personal or business activities, with any of the Company Released
Parties in any and all investigations or other legal, equitable or business
matters or proceedings which involve any matters for which Executive worked on
or had responsibility during his employment with the Company; and (b) to be
reasonably available to the Company, Resaca, or their representatives to provide
general advice or assistance as requested by the Company or Resaca.  This
includes, without limitation, to testifying (and preparing to testify) as a
witness in any proceeding or otherwise providing information or reasonable
assistance to the Company and Resaca in connection with any investigation, claim
or suit, and cooperating with the Company and Resaca regarding any
investigation, litigation, claims or other disputed matters involving the
Company or Resaca or their subsidiaries and affiliates that relate to matters
within the knowledge or responsibility of Executive.  Specifically, Executive
agrees (i) to meet with the Company’s and Resaca’s representatives, their
counsel or other designees at reasonable times and places with respect to any
items within the scope of this provision; (ii) to provide truthful testimony
regarding same to any court, agency or other adjudicatory body; (iii) to provide
the Company with immediate notice of contact or subpoena by any non-governmental
adverse party, and (iv) not to voluntarily assist any non-governmental adverse
party or non-governmental adverse party’s representatives.  Executive
acknowledges and understands that his cooperation obligations under this
Section 13 are not limited in time and may include, but shall not be limited to,
the need for or availability for testimony.  In addition to the consideration
identified in Section 3, Executive shall receive compensation for his time spent
assisting the

 

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Company or Resaca under this Section 13 at the rate of $250 per hour plus
reasonable and necessary expenses incurred by Executive; provided, however, that
the Company shall reimburse Executive, upon submission of substantiating
documentation, for necessary and reasonable expenses incurred by him as a result
of such assistance, and the Company shall not be obligated to reimburse
Executive for any time spent actually testifying, as opposed to preparing to
testify, in any judicial or administrative proceeding.  Such hourly rate and
expenses will be paid on a monthly basis within 15 days following receipt of an
invoice from Executive.   Executive shall invoice the Company or Resaca on a
monthly basis.  Executive’s cooperation under this Section shall be limited by
the Company so that such cooperation shall not result in him failing to incur a
separation from service from the Company and its affiliates within the meaning
of Section 409A.

 

14.          No Re-Employment with the Company.  Executive waives and
relinquishes all rights to employment, reemployment or
reinstatement (collectively “employment”) with the Company and Resaca and their
respective affiliates and subsidiaries.  Executive agrees that he will not work
for the Company, Resaca and their respective affiliates and subsidiaries, or
apply for employment with them, or accept employment with them in any capacity. 
Executive further acknowledges that if he applies for or seeks employment with
any of the Company, Resaca and their respective affiliates and subsidiaries,
their refusal to hire Executive based on this provision will provide a complete
defense to any claims arising from his attempt to apply for employment.  In
addition, for a period of five (5) years beginning on the Closing Date,
Executive agrees that he will not serve as a member of the board of directors or
officer of any of the Company, Resaca and their respective affiliates and
subsidiaries.

 

15.          Return of Company Property.  On or prior to the Separation Date,
Executive shall, to the extent not previously returned or delivered: (a) return
all equipment, records, files, programs or other materials and property in his
possession which belongs to any member of the Company Group or any one or more
of its subsidiaries or affiliates, including, without limitation, all, computer
access codes, Blackberries, credit cards, keys and access cards; and (b) deliver
all original and copies of notes, materials, records, plans, technical data or
other documents, files or programs (whether stored in paper form, computer form,
digital form, electronically or otherwise) that relate or refer to (1) the
Company or any one or more of its subsidiaries or affiliates, or (2) the Company
or any one or more of the Company’s subsidiaries’ or affiliates’ financial
statements, business contacts, and sales.  Executive further agrees that he will
not improperly copy, alter, destroy, or delete any Company (including other
Company Group members) files, documents or other materials currently in his
possession and he will not improperly use or disclose such materials in any way,
or in any format, including written information in any form, information stored
by electronic means, and any and all copies of these materials.  By signing this
Agreement, Executive represents and warrants that he has not retained and has or
will timely return and deliver all the items described or referenced in
subsections (a) or (b) above; and, that should he later discover additional
items described or referenced in subsections (a) or (b) above, he will promptly
notify the Company and return/deliver such items to the Company.  This
Section does not apply to, and Executive may retain a copy of, personnel,
benefit or payroll documents of the Company concerning him, or any contacts,
personal non-work related e-mails, calendars or any items that Executive owned
and brought to the Company himself.

 

16.          Return of Company Credit Card and Club Membership.

 

(a)           Executive agrees that he shall return any Company credit cards in
his possession to the Company on the Separation Date.  During the period
beginning on the date hereof, and ending on the Closing Date, Executive agrees
that (i) he shall use the Company credit cards to pay for only reasonable and
necessary business expenses incurred in the ordinary course of business and
consistent with the Company’s expense policies and procedures; and (ii) the
Company may deduct from the Separation Payment any expenses that, in the
Company’s sole discretion, are not

 

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reasonable and necessary expenses incurred in the ordinary course of business or
are in violation of the Company’s expense reimbursement policies and procedures.

 

(b)           For all periods on and after the Separation Date, Executive, and
not the Company or Resaca, shall be solely responsible for all fees, costs, and
expenses associated with his membership at the Fort Worth Club.

 

17.          Breach of Agreement.  In the event Executive fails to materially
fulfill any of his obligations in this Agreement, or Executive or anyone acting
on his behalf brings suit against the Company or Resaca seeking to declare any
term of this Agreement void or unenforceable, and if in such suit one or more
material terms of this Agreement are ruled by a court to be void or
unenforceable or subject to reduction or modification, then the Company shall be
entitled to (a) terminate this Agreement, (b) terminate any remaining Separation
Payments set forth in Section 3, and Executive shall not be entitled to receive
any remaining Separation Payments, (c) recover Separation Payments and all other
benefits set forth in Section 3 already paid to Executive upon court order,
(d) recover attorneys’ fees, expenses and costs the Company incurs in any court
action the Company or Resaca lodges to pursue any remedies for breach of this
Agreement, and/or (e) recover any and all other damages to which the Company may
be entitled at law or in equity as a result of a breach of this Agreement.  The
Company and Executive agree that at the time Executive and the Company enter
into this Agreement, the damages remedies for Executive’s breach of this
Agreement cannot be easily ascertained and the damages remedies specified in
this Section 17 are a reasonable forecast of just compensation to the Company
for any breach.  The Company and Executive understand and willingly agree that
the damages remedies for any breach of the Agreement are not disproportionate to
any actual damages amount and are not a penalty.  If Executive breaches this
Agreement, the Company may seek all other equitable and legal relief including,
without limitation, a temporary restraining order, temporary injunctive relief,
and a permanent injunction against Executive and any other persons, individuals,
corporations, businesses, groups, partnerships or other entities acting by,
through, under, or in concert with Executive.  At the Company’s sole option, the
remaining terms of this Agreement shall continue in full force and effect.

 

18.          No Assignment of Claims.  Executive represents that he has not
transferred or assigned, to any person or entity, any claim released by this
Agreement, or any portion thereof or interest therein.

 

19.          Binding Effect of Agreement.  This Agreement shall be binding upon
Executive and his heirs, spouse, representatives, successors and assigns.  This
Agreement shall be binding upon the Company, Resaca and their respective
representatives, successors and assigns.

 

20.          Controlling Law.  This Agreement shall in all respects be
interpreted, enforced, and governed under the laws of the State of Texas.  The
Company and Executive agree that the language on this Agreement shall, in all
cases, be construed as a whole, according to its fair meaning, and not strictly
for, or against, any of the Parties.

 

21.          Severability.  Should any provision of this Agreement be declared
or determined to be illegal or invalid by any government agency or court of
competent jurisdiction, the validity of the remaining parts, terms or provisions
of this Agreement shall not be affected and such provisions shall remain in full
force and effect.  In addition, any illegal, invalid or unenforceable provisions
shall be, and are, automatically reformed to the maximum limitation permitted by
applicable law.

 

22.          Entire Agreement.  This Agreement sets forth the entire agreement
between the Parties, and fully supersedes any and all prior agreements,
understandings, or representations between the Parties pertaining to Executive’s
employment with the Company, the subject matter of this Agreement or any other
term or condition of the relationship between the Company and Executive,
including, without limitation, the

 

9

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Employment Agreement.  Executive represents and acknowledges that in executing
this Agreement, he does not rely, and has not relied, upon any
representation(s) by the Company or Resaca or their agents except as expressly
contained in this Agreement.  No oral statements or prior written material
purporting to be part of this Agreement not specifically incorporated in this
Agreement shall be of any force and effect, and no changes in or additions to
this Agreement shall be recognized, unless incorporated in this Agreement by
written amendment, such amendment to become effective on the date stipulated in
it.  Any amendment to this Agreement must be signed by all Parties to this
Agreement, and consented to in writing by Resaca.

 

22.          Notices.  All notices and other communications hereunder will be in
writing. Any notice or other communication hereunder shall be deemed duly given
if it is sent by registered or certified mail, return receipt requested, postage
prepaid, and addressed to the intended recipient as set forth:

 

If to the Company:

 

Cano Petroleum, Inc.

Burnett Plaza

801 Cherry Street, Suite 3200

Fort Worth, Texas 76102

Telephone: 817-698-0900

Facsimile: 817-334-0222

Attention: Phillip B. Feiner, Esq., General Counsel

 

With a copy (which shall not constitute notice) to:

 

Resaca Exploitation, Inc.

1331 Lamar, Suite 1450

Houston, Texas 77010

Telephone: 713-753-1406

Facsimile: 713-753-1537

Attention: Chris Work, Chief Financial Officer

 

Thompson & Knight LLP

1722 Routh Street, Suite 1500

Dallas, Texas 75201-2533

Telephone: 214-969-1303

Facsimile: 214-999-1695

Attention: Arthur J. Wright, Esq.

 

Haynes and Boone, LLP

One Houston Center

1221 McKinney Street, Suite 2100

Houston, TX 77010

Telephone: 713-547-2007

Facsimile: 713-236-5540

Attention: Bryce D. Linsenmayer, Esq. and Amy Moss, Esq.

 

If to Executive:

 

S. Jeffrey Johnson

8916 Estribo Circle

 

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Benbrook, Texas 76126

Telephone: 817-460-0401

 

With a copy (which shall not constitute notice) to:

 

Shannon Gracey, Ratliff & Miller, LLP

777 Main Street, Ste. 3800

Fort Worth, TX 76102

Telephone: 817-336-9333

Facsimile: 817-336-3735

Attention: Patrick J. Maher, Esq.

 

Any Party may send any notice or other communication hereunder to the intended
recipient at the address set forth using any other means (including personal
delivery, expedited courier, messenger services, fax, ordinary mail or
electronic mail), but no such notice or other communication shall be deemed to
have been duly given unless and until it is actually received by the intended
recipient.  Any Party may change the address to which notices and other
communications are to be delivered by giving the other Party notice.

 

23.          Independent Representation.  Executive acknowledges and agrees that
he is not relying on any Released Party and any of their advisors, including,
without limitation, Haynes and Boone, LLP and Thompson & Knight LLP, for advice,
including with respect to tax or legal matters, that he has been advised by the
Company to consult advisors of his choice prior to executing this Agreement, and
that he shall be solely responsible for all taxes due with respect to any
payments made to Executive pursuant to this Agreement, including, without
limitation, taxes due under Code Section 280G and/or Code Section 409A, if any.

 

24.          Knowing and Voluntary Waiver.  Executive, by his free and voluntary
act of signing below, acknowledges that (i) he has been given a period of
forty-five (45) days to consider whether to agree to the terms contained in this
Agreement, (ii) the Company advises him to consult with an attorney before
executing this Agreement, (iii) he understands that this Agreement specifically
releases and waives all rights and claims he may have under the ADEA before the
date on which he signs this Agreement, (iv) he agrees to all of the Agreement
terms and intends to be legally bound by them, and (v) he has received,
contemporaneous with this Agreement, a Supplemental Age Distribution Information
Memorandum and a Supplemental Age Distribution Information Chart (together, the
“OWBPA Memorandum”), which identify the job titles and ages of all employees of
the Company who have been offered a Separation Agreement and Release Agreement
in connection with Transactions (as defined in the Merger Agreement).  Further,
Executive acknowledges that the payments and benefits provided for in Section 3
of this Agreement will be delayed until both this Agreement and the Closing Date
Waiver and Release become effective, enforceable and irrevocable.  The Parties
acknowledge and agree that each Party has reviewed and negotiated the terms and
provisions of this Agreement and has contributed to its preparation (with advice
of counsel).  Accordingly, the rule of construction that ambiguities are
resolved against the drafting party shall not be employed in interpreting this
Agreement. Rather, this Agreement’s terms shall be construed fairly as to the
Parties and not in favor of or against either Party, regardless of which Party
generally was responsible for the Agreement’s preparation.

 

The Company’s offer of this Agreement shall expire after a period of forty-five
(45) days after the date on which Executive first received this Agreement and
the OWBPA Memorandum for consideration (the “Expiration Date”).   During the
seven-day period after Executive signs this Agreement, Executive may revoke his
agreement to accept the Agreement’s terms by representing in writing to the
Company his intention to revoke.  If Executive exercises his right to revoke
this Agreement, he shall forfeit his right to receive any of the payments, stock
or benefits provided for herein, and to the extent such payments or benefits
have already

 

11

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been made, Executive agrees that he will immediately reimburse the Company for
the amounts of such payments and benefits.

 

25.          Defined Terms.  Any capitalized terms not otherwise defined in this
Agreement shall have the meanings assigned to such terms in the Merger
Agreement.

 

26.          Company Authorization.  The Company acknowledges and agrees that
this Agreement and the Separation Payment in Section 3(b) have been reviewed,
approved, and authorized by the Board of Directors of the Company.

 

27.          Resaca Obligations.   In the event that the Company does not
perform its obligations with respect paying the Separation Payment and other
payments under Section 3, Resaca agrees to pay the Separation Payment and such
other payments to Executive.  Furthermore, to the extent the Company does not
fulfill its obligations under this Agreement, Resaca agrees to cause the
Surviving Corporation to fulfill the Company’s obligations.  Other than the
obligations listed in Section 3(b), Section 7, and this Section 27, Resaca shall
have no further responsibilities or obligations under or pursuant to this
Agreement.

 

[Remainder of Page Intentionally Left Blank]

 

12

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I ACKNOWLEDGE THAT I HAVE CAREFULLY READ THE FOREGOING AGREEMENT, THAT I
UNDERSTAND ALL OF ITS TERMS AND THAT I AM RELEASING CLAIMS AND THAT I AM
ENTERING INTO IT VOLUNTARILY.

 

AGREED TO BY:

 

 

/s/ S. Jeffrey Johnson

 

 

S. Jeffrey Johnson

 

Date: September 29, 2009

 

 

STATE OF TEXAS

 

COUNTY OF TARRANT

 

Before me, a Notary Public, on this day personally appeared S. Jeffrey Johnson
known to me to be the person whose name is subscribed to the foregoing
instrument, and acknowledges to me that he has executed this Agreement on behalf
of himself and his heirs, for the purposes and consideration therein expressed.

 

Given under my hand and seal of office this 29th day of September, 2009.

 

 

 

/s/ Sandra C. Durazo

 

Notary Public in and for the State of Texas

 

(PERSONALIZED SEAL)

 

13

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CANO PETROLEUM, INC.

 

 

By:

/s/ Phillip B. Feiner

 

Name:

Phillip B. Feiner

 

Title:

V.P. & General Counsel

 

 

Date: 9/29/09

 

 

STATE OF TEXAS

 

COUNTY OF DALLAS

 

Before me, a Notary Public, on this day personally appeared Phillip B. Feiner,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of Cano
Petroleum, Inc., and that s/he has executed the same on behalf of said
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.

 

Given under my hand and seal of office this 29th day of September, 2009.

 

 

 

/s/ Jessica Hammons

 

Notary Public in and for the State of Texas

 

(PERSONALIZED SEAL)

 

14

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RESACA EXPLOITATION, INC.

 

 

By:

/s/ Chris Work

 

 

Chris Work

 

 

Vice President and Chief Financial Officer

 

 

Date: September 29, 2009

 

 

STATE OF TEXAS

 

COUNTY OF HARRIS

 

Before me, a Notary Public, on this day personally appeared Chris Work, known to
me to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of Resaca
Exploitation, Inc., and that he has executed the same on behalf of said
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.

 

Given under my hand and seal of office this 29th day of September, 2009.

 

 

 

/s/ Barbara W. Fontenot

 

Notary Public in and for the State of Texas

 

(PERSONALIZED SEAL)

 

15

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EXHIBIT A

 

Orderly Marketing Deed

 

16

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EXHIBIT B

 

Waiver and Release of Claims

 

1.             Introduction.  This Release is made and entered into between Cano
Petroleum, Inc., a Delaware Corporation (“Cano” or the “Company”) and S. Jeffrey
Johnson (“Executive”).  Executive understands that his employment with Cano (as
referenced in the Recitals section of the Separation Agreement and Release
entered into on September 29, 2009 (“Separation Agreement”)) ends on the Closing
Date.  In return for the Mutual Release contained herein and other good and
valuable consideration, including, without limitation, the consideration given
to Executive in the Separation Agreement, the receipt and sufficiency of which
the Parties acknowledge, Executive and the Company are entering into this Mutual
Release (“Release”).

 

2.             Executive’s Global Release.  Executive, on behalf of himself, his
heirs, executors, insurers, successors and assigns and all persons or entities
acting by, through, under or in concert with any of them, irrevocably and
unconditionally releases, waives, and forever discharges the Company, Resaca
Exploitation, Inc. (“Resaca”), and the Surviving Corporation (as that term is
defined in the Recitals section of the Separation Agreement) and all of their
parents, divisions, partnerships, joint ventures, subsidiaries, affiliates, and
related companies, and their present and former agents, employees, officers,
directors, partners, members, attorneys, stockholders, plan fiduciaries,
employee benefit committees, successors and assigns, and all other persons,
individuals or entities acting by, through, under, or in concert with any of
them (collectively, “Company Released Parties”), from any and all claims,
demands, actions, causes of action, costs, attorney fees, and all liability
whatsoever, whether known or unknown, fixed or contingent, which Executive has,
had, or may ever have against the Company Released Parties relating to or
arising out of Executive’s employment or separation from employment with the
Company, from the beginning of time and up to and including the date Executive
executes this Release.  This Release includes, without limitation, (i) law or
equity claims; (ii) contract (express or implied) or tort claims; (iii) claims
for wrongful discharge, retaliatory discharge, whistleblowing, libel, slander,
defamation, unpaid compensation, intentional infliction of emotional distress,
fraud, public policy contract or tort, and implied covenant of good faith and
fair dealing; (iv) claims arising under any federal, state, or local laws of any
jurisdiction that prohibit age, sex, gender, race, national origin, color,
disability, religion, veteran, military status, sexual orientation, or any other
form of discrimination, harassment, or retaliation (including, without
limitation, the Age Discrimination in Employment Act, the Americans with
Disabilities Act, the ADA Amendments Act of 2008, Title VII of the 1964 Civil
Rights Act, the Civil Rights Act of 1991, the Civil Rights Acts of 1866 and/or
1871, 42 U.S.C. Section 1981, the Rehabilitation Act, the Family and Medical
Leave Act, the Sarbanes-Oxley Act, the Employee Polygraph Protection Act, the
Uniformed Services Employment and Reemployment Rights Act of 1994, the Equal Pay
Act, the Lilly Ledbetter Fair Pay Act, the Texas Commission on Human Rights Act
(and any similarly named statute in the Texas Labor Code), the Texas Labor Code,
or any other federal, state, or local laws of any jurisdiction), (v) claims
arising under the Employee Retirement Income Security Act, and (vi) any other
statutory or common law claims related to Executive’s employment with the
Company or the separation of Executive’s employment with the Company.    This
Release does not affect, waive or release (a) any claim for breach or
enforcement of the Separation Agreement or this Release; (b) any claim that may
arise after the date this Release is signed by Executive; (c) any claim for
worker’s compensation benefits, or (d) Executive’s vested rights, if any, under
the terms of any employee benefit plans maintained by the Company or Administaff
(as defined in the Separation Agreement) for the benefit of Company employees,
including without limitation Executive’s entitlement to the funds contained in
Executive’s 401(k) Plan account with the Company..

 

3.             The Company’s Release.  In consideration for Executive’s release
of the Company Released Parties, the Company hereby releases Executive from any
and all claims, demands, actions, causes of action, costs, fees, attorneys’
fees, and all liabilities whatsoever, fixed or contingent which the Company or
the

 

17

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Company Released Parties have, had or may ever have against Executive up to and
including the date of execution of this Release to the extent known to any
member of the Company or the Company Released Parties or to the extent that any
such member of the Company or the Company Released Parties should reasonably
have been aware of its existence.    This Release does not affect, waive or
release (a) any claim for breach or enforcement of the Separation Agreement or
this Release; (b) any claim that may arise after the date this Release is signed
by the Company; or (c) any claim for fraud, gross negligence, or intentional
misconduct by the Executive, including without limitation claims for any
intentional torts, gross negligence, illegal acts, or acts for which criminal
penalties are available.

 

4.             No Admission of Liability.  Executive understands and agrees that
this Release shall not in any way be construed as an admission by Company
Released Parties of any unlawful or wrongful acts whatsoever against Executive
or any other person. Company Released Parties specifically disclaim any
liability to or wrongful acts against Executive or any other person.

 

5.             Time to Consider Release.  Cano advises Executive to consult an
attorney before executing this Release.  Executive further acknowledges that he
has been given a period of forty-five (45) calendar days within which to review
and consider the provisions of this Release.

 

6.             Revocation Period.  Executive understands and acknowledges that
he has seven (7) calendar days following the execution of this Release to revoke
his acceptance of this Release.  This Release will not become effective or
enforceable, until after the seven (7) day period to revoke this Release has
expired without Executive’s revocation.

 

7.             Knowing and Voluntary Release.  Executive understands it is his
choice whether to enter into this Release and that his decision to do so is
voluntary and is made knowingly.

 

8.             No Prior Representations or Inducements.  Executive represents
and acknowledges that in executing this Release, he does not rely, and has not
relied, on any communications, statements, promises, inducements, or
representation(s), oral or written, by any of Company Released Parties, except
as expressly contained in this Release and the Separation Agreement.  This
Release and the Separation Agreement constitute the sole and entire agreement of
the parties with respect to their subject matters; supersede all prior verbal
and written understandings and agreements between the parties relating to
subject matters; and may not be modified except in a writing signed by both
parties.

 

9.             Binding Release.  Executive agrees that this Release shall be
binding on him and his heirs, administrators, representatives, executors,
successors and assigns, and shall inure to the benefit of his heirs,
administrators, representatives, executors, successors and assigns.

 

10.          Choice of Law.  This Release shall, in all respects, be
interpreted, enforced, and governed under the laws of the State of Texas.  Cano
and Executive agree that the language of this Release shall, in all cases, be
construed as a whole, according to its fair meaning, and not strictly for, or
against, any of the parties.

 

11.          Severability.  Cano and Executive agree that should a court declare
or determine that any provision of this Release is illegal or invalid, the
validity of the remaining parts, terms or provisions of this Release will not be
affected and any illegal or invalid part, term, or provision, will not be deemed
to be a part of this Release.

 

12.          Counterparts.  Cano and Executive agree that this Release may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall be deemed one and the same instrument.

 

18

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PLEASE READ CAREFULLY AS THIS DOCUMENT INCLUDES A RELEASE OF CLAIMS.

 

As evidenced by his signature below, Executive certifies that he has read the
above Release and agrees to its terms.

 

 

 

 

 

S. Jeffrey Johnson

 

Cano Petroleum, Inc.

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

Date:

 

 

Date:

 

 

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