Exhibit 10.7

 

EMPLOYEE RESTRICTED STOCK AWARD

 

CANO PETROLEUM, INC.

2005 LONG-TERM INCENTIVE PLAN

 

Pursuant to the Cano Petroleum, Inc. 2005 Long-Term Incentive Plan (the “Plan”)
for key employees, key consultants, and outside directors of Cano
Petroleum, Inc., a Delaware corporation (the “Company”) and its Subsidiaries,

 

John Lacik

(the “Participant”)

 

has been granted a Restricted Stock Award in accordance with Section 6.4 of the
Plan.

 

1.                                       Terms of Award. The number of shares of
Common Stock awarded under this Award Agreement (this “Agreement”)  is 30,000
shares (the “Awarded Shares”). The Date of Grant of this Award is June 1, 2006.

 

2.                                       Subject to Plan. This Agreement is
subject to the terms and conditions of the Plan, and the terms of the Plan shall
control to the extent not otherwise inconsistent with the provisions of this
Agreement. The capitalized terms used herein that are defined in the Plan shall
have the same meanings assigned to them in the Plan. This Agreement is subject
to any rules promulgated pursuant to the Plan by the Board or the Committee and
communicated to the Participant in writing.

 

3.                                       Vesting. Except as specifically
provided in this Agreement and subject to certain restrictions and conditions
set forth in the Plan, all the Awarded Shares shall be vested on the third
anniversary of the Date of Grant, provided the Participant is employed by (or,
if the Participant is a Consultant, is providing services to) the Company or a
Subsidiary on that date.

 

4.                                       Forfeiture of Awarded Shares. Awarded
Shares that are not vested in accordance with Section 3 shall be forfeited on
the date of the Participant’s Termination of Service. Upon forfeiture, all of
the Participant’s rights with respect to the forfeited Awarded Shares shall
cease and terminate, without any further obligations on the part of the Company.

 

5.                                       Restrictions on Awarded Shares. Awarded
Shares that are not vested in accordance with Section 3 and which are subject to
forfeiture in accordance with Section 4 shall be subject to the terms,
conditions, provisions, and limitations of this Section 5.

 

(a)                                  Subject to the provisions of the Plan and
the other terms of this Agreement, from the Date of Grant until the date the
Awarded Shares are vested in accordance with Section 3 and no longer subject to
forfeiture in accordance with Section 4 (the “Restriction Period”), the
Participant shall not be permitted to sell, transfer, pledge or assign shares
any of the Awarded Shares.

 

(b)                                 Except as provided in paragraph (a) above,
the Participant shall have, with respect to his or her Awarded Shares, all of
the rights of a stockholder of the Company, including the right to vote the
shares, and the right to receive any dividends thereon.

 

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6.                                       Legend. The following legend shall be
placed on all certificates representing Awarded Shares:

 

On the face of the certificate:

 

“Transfer of this stock is restricted in accordance with conditions printed on
the reverse of this certificate.”

 

On the reverse:

 

“The shares of stock evidenced by this certificate are subject to and
transferable only in accordance with that certain Cano Petroleum, Inc. 2005
Long-Term Incentive Plan, a copy of which is on file at the principal office of
the Company in Dallas, Texas. No transfer or pledge of the shares evidenced
hereby may be made except in accordance with and subject to the provisions of
said Plan. By acceptance of this certificate, any holder, transferee or pledgee
hereof agrees to be bound by all of the provisions of said Plan.”

 

The following legend shall be inserted on a certificate evidencing Common Stock
issued under the Plan if the shares were not issued in a transaction registered
under the applicable federal and state securities laws:

 

“Shares of stock represented by this certificate have been acquired by the
holder for investment and not for resale, transfer or distribution, have been
issued pursuant to exemptions from the registration requirements of applicable
state and federal securities laws, and may not be offered for sale, sold or
transferred other than pursuant to effective registration under such laws, or in
transactions otherwise in compliance with such laws, and upon evidence
satisfactory to the Company of compliance with such laws, as to which the
Company may rely upon an opinion of counsel satisfactory to the Company.”

 

All Awarded Shares owned by the Participant shall be subject to the terms of
this Agreement and shall be represented by a certificate or certificates bearing
the foregoing legend.

 

7.                                       Delivery of Certificates. Certificates
for Awarded Shares free of restriction under this Agreement shall be delivered
to the Participant promptly after, and only after, the Restriction Period shall
expire without forfeiture in respect of such shares of Common Stock.
Certificates for shares of Common Stock forfeited pursuant to Section 4 shall be
promptly returned to the Company by the Participant. In connection with the
issuance of a certificate for Restricted Stock, the Participant shall endorse
such certificate in blank or execute a stock power in a form satisfactory to the
Company in blank and deliver such certificate and executed stock power to the
Company. The parties acknowledge that remedies at law will be inadequate
remedies for breach of this Section 7 and consequently agree that this Section 7
shall be enforceable by specific performance. The remedy of specific performance
shall be cumulative of all of the rights and remedies at law or in equity of the
parties under this Section 7.

 

8.                                       Voting. The Participant, as record
holder of the Awarded Shares, has the exclusive right to vote, or consent with
respect to, such Awarded Shares until such time as the Awarded Shares are
transferred in accordance with this Agreement or a proxy is granted pursuant to
Section 9 below; provided, however, that this

 

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Section 8 shall not create any voting right where the holders of such Awarded
Shares otherwise have no such right.

 

9.                                       Proxies. Participant may not grant a
proxy to any person, other than a revocable proxy not to exceed 30 days in
duration granted to another stockholder for the sole purpose of voting for
directors of the Company.

 

10.                                 Representations, Etc. Each spouse
individually is bound by, and such spouse’s interest, if any, in any Awarded
Shares is subject to, the terms of this Agreement. Nothing in this Agreement
shall create a community property interest where none otherwise exists.

 

11.                                 Simultaneous Death. If Participant and his
or her spouse both suffer a common accident or casualty which results in their
respective deaths within 60 days of each other, it shall be conclusively
presumed, for the purpose of this Agreement, that the Participant died first and
the spouse died thereafter.

 

12.                                 Participant’s Representations.
Notwithstanding any of the provisions hereof, the Participant hereby agrees that
he will not acquire any Awarded Shares, and that the Company will not be
obligated to issue any Awarded Shares to the Participant hereunder, if the
issuance of such shares shall constitute a violation by the Participant or the
Company of any provision of any law or regulation of any governmental authority.
Any determination in this connection by the Company shall be final, binding, and
conclusive. The obligations of the Company and the rights of the Participant are
subject to all applicable laws, rules, and regulations.

 

13.                                 Participant’s Acknowledgments. The
Participant acknowledges receipt of a copy of the Plan, which is annexed hereto,
and represents that he or she is familiar with the terms and provisions thereof,
and hereby accepts this Award subject to all the terms and provisions thereof.
The Participant hereby agrees to accept as binding, conclusive, and final all
decisions or interpretations of the Board or the Committee upon any questions
arising under the Plan or this Agreement.

 

14.                                 Law Governing. This Agreement shall be
governed by, construed, and enforced in accordance with the laws of the State of
Texas (excluding any conflict of laws rule or principle of Texas law that might
refer the governance, construction, or interpretation of this agreement to the
laws of another state).

 

15.                                 Legal Construction. In the event that any
one or more of the terms, provisions, or agreements that are contained in this
Agreement shall be held by either a court of competent jurisdiction, with
respect to claims under Section 7, or by an arbitrator, with respect to all
other claims under the Agreement, to be invalid, illegal, or unenforceable in
any respect for any reason, the invalid, illegal, or unenforceable term,
provision, or agreement shall not affect any other term, provision, or agreement
that is contained in this Agreement and this Agreement shall be construed in all
respects as if the invalid, illegal, or unenforceable term, provision, or
agreement had never been contained herein.

 

16.                                 Covenants and Agreements as Independent
Agreements. Each of the covenants and agreements that is set forth in this
Agreement shall be construed as a covenant and agreement independent of any
other provision of this Agreement. The existence of any claim or cause of action
of the Participant against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
the covenants and agreements that are set forth in this Agreement.

 

17.                                 Entire Agreement. This Agreement together
with the Plan supersede any and all other prior understandings and agreements,
either oral or in writing, between the parties with respect to the subject
matter hereof and constitute the sole and only agreements between the parties
with respect to the said subject matter. All prior negotiations and agreements
between the parties with respect to the subject matter hereof are merged

 

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into this Agreement. Each party to this Agreement acknowledges that no
representations, inducements, promises, or agreements, orally or otherwise, have
been made by any party or by anyone acting on behalf of any party, which are not
embodied in this Agreement or the Plan and that any agreement, statement or
promise that is not contained in this Agreement or the Plan shall not be valid
or binding or of any force or effect.

 

18.                                 Parties Bound. The terms, provisions, and
agreements that are contained in this Agreement shall apply to, be binding upon,
and inure to the benefit of the parties and their respective heirs, executors,
administrators, legal representatives, and permitted successors and assigns,
subject to the limitation on assignment expressly set forth herein. No person or
entity shall be permitted to acquire any Awarded Shares without first executing
and delivering an agreement in the form satisfactory to the Company making such
person or entity subject to the restrictions on transfer contained in Section 5
hereof.

 

19.                                 Modification. No change or modification of
this Agreement shall be valid or binding upon the parties unless the change or
modification is in writing and signed by the parties; provided, however, that
the Company may change or modify this Agreement without the Participant’s
consent or signature if the Company determines, in its sole discretion, that
such change or modification is necessary for purposes of compliance with or
exemption from the requirements of Section 409A of the Code or any regulations
or other guidance issued thereunder. Notwithstanding the preceding sentence, the
Company may amend the Plan to the extent permitted by the Plan.

 

20.                                 Headings. The headings that are used in this
Agreement are used for reference and convenience purposes only and do not
constitute substantive matters to be considered in construing the terms and
provisions of this Agreement.

 

21.                                 Gender and Number. Words of any gender used
in this Agreement shall be held and construed to include any other gender, and
words in the singular number shall be held to include the plural, and vice
versa, unless the context requires otherwise.

 

22.                                 Notice. Any notice required or permitted to
be delivered hereunder shall be deemed to be delivered only when actually
received by the Company or by the Participant, as the case may be, at the
addresses set forth below, or at such other addresses as they have theretofore
specified by written notice delivered in accordance herewith:

 

(a)                                  Notice to the Company shall be addressed
and delivered as follows:

 

Cano Petroleum, Inc.

309 West Seventh Street, Suite 1600

Fort Worth, Texas  76102

Attn:  General Counsel

Facsimile:  (817) 698-0796

 

(b)                                 Notice to the Participant shall be addressed
and delivered as set forth on the signature page.

 

23.                                 Tax Requirements. The Participant is hereby
advised to consult immediately with his or her own tax advisor regarding the tax
consequences of this Agreement, the method and timing for filing an election to
include this Agreement in income under Section 83(b) of the Code, and the tax
consequences of such election. By execution of this Agreement, the Participant
agrees that if the Participant makes such an election, the Participant shall
provide the Company with written notice of such election in accordance with the
regulations promulgated under Code Section 83(b). The Company or, if applicable,
any Subsidiary (for

 

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purposes of this Section 23, the term “Company” shall be deemed to include any
applicable Subsidiary), shall have the right to deduct from all amounts paid in
cash or other form in connection with the Plan, any Federal, state, local, or
other taxes required by law to be withheld in connection with this Award. The
Company may, in its sole discretion, also require the Participant receiving
shares of Common Stock issued under the Plan to pay the Company the amount of
any taxes that the Company is required to withhold in connection with the
Participant’s income arising with respect to this Award. Such payments shall be
required to be made when requested by Company and may be required to be made
prior to the delivery of any certificate representing shares of Common Stock.
Such payment may be made (i) by the delivery of cash to the Company in an amount
that equals or exceeds (to avoid the issuance of fractional shares under
(iii) below) the required tax withholding obligations of the Company; (ii) if
the Company, in its sole discretion, so consents in writing, the actual delivery
by the exercising Participant to the Company of shares of Common Stock that the
Participant has not acquired from the Company within six (6) months prior to the
date of exercise, which shares so delivered have an aggregate Fair Market Value
that equals or exceeds (to avoid the issuance of fractional shares under
(iii) below) the required tax withholding payment; (iii) if the Company, in its
sole discretion, so consents in writing, the Company’s withholding of a number
of shares to be delivered upon the exercise of this Award, which shares so
withheld have an aggregate fair market value that equals (but does not exceed)
the required tax withholding payment; or (iv) any combination of (i), (ii), or
(iii). The Company may, in its sole discretion, withhold any such taxes from any
other cash remuneration otherwise paid by the Company to the Participant.

 

 

[Signature Page to Follow]

 

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer, and the Participant, to evidence his consent and
approval of all the terms hereof, has duly executed this Agreement, as of the
date specified in Section 1 hereof.

 

 

COMPANY:

 

 

 

CANO PETROLEUM, INC.

 

 

 

 

 

By:

/s/ S. Jeffrey Johnson

 

Name:

S. Jeffrey Johnson

 

Title:

Chairman and Chief Executive Officer

 

 

 

 

 

PARTICIPANT:

 

 

 

 

 

/s/ John Lacik

 

Signature

 

 

 

 

Name:

JOHN LACIK

 

 

 

 

Address:

309 West Seventh St., Suite 1600

 

 

Fort Worth, TX 76102

 

 

 

 

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