EXHIBIT 10.1


EMPLOYMENT AGREEMENT


THIS
EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered
into by and between Cano Petroleum Inc.,
a Delaware corporation with its principal executive offices in Fort Worth,
Texas (the “Company”), and
Patrick M. McKinney, an individual currently residing in
Tarrant County, Texas (“Vice President”), as of the 1st day of June, 2006 (the “Effective
Date”).  The Company and Vice President
may sometimes be referred to herein individually as “Party” and collectively as
“Parties.”


Background


A.            The
Company desires to employ Vice President in such a manner as will reinforce and
encourage the highest attention and dedication to the Company and in the best
interest of the Company and its shareholders; and


B.            Vice
President is willing to serve the Company on the terms and conditions herein
provided.


Terms and Conditions


In consideration of the covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows:


1.              Employment. 
The Company hereby employs Vice President in the capacity of Vice President —
Business Development, and Vice President hereby agrees to accept such
employment by the Company, upon the terms and conditions stated in this
Agreement.


2.             Term. 
The employment of Vice President by the Company as provided in this Section
will be for a term of three (3) years (the “Term”) commencing on the Effective Date and expiring at the
close of business on May 31, 2009.  After the Employment Term, this Agreement
shall be automatically renewed for an indefinite number of successive one-year
periods (a “Renewal
Term”), unless either party gives written notice of its intent not to
renew the Agreement no less than 30 days before the conclusion of the Term or
Renewal Term, as applicable.  For the
purposes of this Agreement, the Term and Renewal Term(s) shall be collectively
called the “Employment Period.” 
In the event, however, that Vice President remains in the employ of the
Company after the term of this Agreement without the parties having entered
into a new employment agreement or extending this Agreement, then (i) the terms
of this Agreement shall not be applicable, (ii) Vice President shall be an
employee-at-will subject to the benefits, programs, and policies of the Company
then in effect, and (iii) either party may terminate the employment
relationship at any time with or without cause.


3.             Duties. 
Vice President shall perform such services and duties as may be assigned to him
from time to time by the Chief Executive Officer of the Company.  Vice President shall devote his full working
time, efforts and energies to the performance of his duties hereunder, which
shall include managing the business development affairs of the Company.



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4.             Compensation.


(a)           Salary:  The Company shall pay Vice President for his
services, a base salary, on an annualized basis, of $185,000.00 (One Hundred
Eighty-Five Thousand Dollars) per annum for the period from the Effective Date,
which salary shall be payable by the Company in substantially equal
installments on the Company’s normal payroll dates.  All applicable taxes
on the base salary will be withheld in accordance with applicable federal,
state and local taxation guidelines.


(b)           Signing Bonus:  In addition to the base salary described in
paragraph 4(a) above, Vice President shall receive, in his first salary
installment payment, a signing bonus in the amount of $30,000.00 (Thirty
Thousand Dollars).  All applicable taxes
on the signing bonus will be withheld in accordance with applicable federal,
state and local taxation guidelines.


(c)           Bonus: In addition to the base
salary described in paragraph 4(a) above, Vice President shall be eligible for
periodic cash bonuses in an amount up to 100% of the then base salary and/or
stock bonuses at the discretion of the Chief Executive Officer of the Company.


(d)           Stock Award:  In addition to the base salary described in
paragraph 4(a) above, Vice President shall receive 30,000 shares of restricted common
stock in the Company.  The restrictions
on the shares shall lapse on May 31, 2009, provided Vice President is still
employed by the Company at that time. 
The terms and conditions of this restricted stock award shall be
contained in an agreement to be executed by the Company and Vice President and
which will be awarded pursuant to the 2005 Cano Petroleum, Inc. Long Term
Incentive Plan.


(e)           Raises:  Vice President may receive periodic increases
in the base salary at the discretion of the Chief Executive Officer of the
Company, which increased base salary shall become the base salary for purposes
of this Agreement. 


5.             Vacations
and Days Off.  Vice President shall be entitled to a reasonable paid
vacation of not less than twenty (20) days each calendar year during the
Employment Period (prorated for the first calendar year), exclusive of holidays
and weekends, which vacation shall be taken by Vice President in accordance
with the business requirements of the Company at the time and its vacation
plans, policies and practices as applied to other officers of the Company then
in effect relative to this subject.  Vice President shall also be entitled
to up to five (5) paid days off each calendar year for paternity leave and up
to three (3) paid days off to attend the funeral of any member of Vice
President’s immediate family.


6.             Employment
Facilities.  During the Employment Period, the Company shall provide,
at its expense, appropriate and adequate office space, furniture,
communications, stenographic and word-processing equipment, supplies and such
other facilities and services as 



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shall be suitable to Vice President’s position or
necessary for Vice President to perform his assigned tasks, duties and
responsibilities under this Agreement.


7.             Expenses
and Services.  During the Employment Period, Vice President shall be
entitled to receive prompt reimbursement for all pre-approved, reasonable
expenses incurred by Vice President by reason of his employment, including
travel and living expenses while away from home at the request of and in the
service of the Company, provided that such expenses are incurred and accounted
for in accordance with the policies and procedures established by the Company
and in effect when the expenses are incurred.


8.             Rights
under Certain Plans.  During the Employment Period, Vice President
shall be entitled to participate in any employee stock ownership plans, 401K
plans, health and dental insurance and other employee benefit plans and
programs maintained by the Company applicable to other employees on the same
basis as other employees of the Company.


9.                                       Confidential
Information and Non-Competition Agreement.


(a)           Vice President and the Company agree
that, upon executing this Agreement, the Company promises to provide, and will
provide, Vice President with its confidential information, including, without
limitation, customer information, trade secrets, lists of suppliers and costs,
information concerning the business and operations of the Company and its
Affiliates and other proprietary data or information, that is valuable, special
and a unique asset of the Company and its Affiliates (hereafter “Confidential
Information”).  Vice President agrees not to disclose Confidential
Information, except as may be necessary in the performance of his duties, to
any Person, nor use such Confidential Information, except as may be necessary
in the performance of his duties, either (i) during his employment by the
Company; (ii) following Vice President’s termination from employment, and;
(iii) following expiration of this Agreement without renewal or replacement,
unless Vice President has received the prior written consent of the Company to
disclose or use Confidential Information. 
Upon termination of Vice President’s employment for any reason or upon a
request, at any time, by the Company, Vice President shall promptly deliver to
the Company all Confidential Information, including all drawings, manuals,
letters, notebooks, customer lists, documents, records, equipment, files,
computer disks or tapes, reports or any other materials relating to the Company’s
business (and all copies) which are in Vice President’s possession or under
Vice President’s control.


(b)           To
protect the Company’s Confidential Information, and in the event of Vice
President’s termination of employment for any reason whatsoever, whether by
Vice President or the Company, it is necessary to enter into the following
restrictive covenant, which is ancillary to the enforceable promises and
agreements between the Company and Vice President in Paragraph 9(a) of this
Agreement.  Without the prior written
consent of the Company, signed by Chairman and CEO of the Company, Vice
President shall not, directly or indirectly, during his employment with the
Company and for a period of one (1) year following the termination of
employment:



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(i)            Engage in or perform services for a
Competing Business.  For purposes of this
Agreement, a “Competing Business” is one that provides the same or
substantially similar products and services as those provided by the Company
during Vice President’s employment, including, without limitation, primary,
secondary and enhanced oil recovery techniques. 
Vice President agrees and understands that the Company’s business is
international in scope and its products are marketed throughout the United
States.  The geographic area for purposes
of this restriction is the area within the entire State of Texas.


(ii)           Solicit business from, attempt to do
business with, or do business with any client or prospective client of the
Company with whom the Company transacted business or solicited within the
preceding 12 months, and which either: (1) Vice President contacted, called on,
serviced, did business with or had significant contact with during Vice
President’s employment at the Company or that Vice President attempted to
contact, call on, service, or do business with during the his employment with
the Company; or (2) Vice President became acquainted with as a result of his
employment at the Company.  This
restriction applies only to business that is in the scope of services or
products provided by the Company.


(iii)          Solicit, induce or attempt to solicit
or induce, on behalf of himself or any other person or entity, any employee or
independent contractor of the Company to terminate their employment or
relationship with the Company and/or accept employment elsewhere.


(iv)          Solicit, induce or attempt to solicit
or induce, any client or prospective client of the Company to cease or curtail
their business relationship with the Company.


10.           Early
Termination. Vice President’s employment hereunder may be terminated
without any breach of this Agreement only under the following circumstances:


(a)           Vice President’s employment hereunder
will terminate upon his death;


(b)           If,
as a result of Vice President’s incapacity due to physical or mental illness,
Vice President shall have been absent from his duties or unable to perform his
full duties hereunder for a total of 90 days during any 12 month period (“Disability
Period”), and within 15 days after written notice of termination is given
(which may occur before or after the end of such 90 day period), shall not have
returned to the performance of his full duties hereunder on a full-time basis,
the Company may terminate Vice President’s employment hereunder. The determination
of Vice President’s incapacity  due to
physical or mental illness shall be made by Vice President’s attending
physician unless the Company disagrees with such determination, in which case
Vice President’s incapacity shall be determined by a majority of three
physicians qualified to practice medicine in the State of the Texas, one to be
selected by each of Vice President (or his authorized 



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representative) and the Company and the third to be
selected by such two designated physicians


 (c)          The Company may terminate Vice
President’s employment hereunder for Cause.  For purposes of this
Agreement, the Company shall have “Cause” to terminate Vice President’s
employment hereunder upon (i) Vice President’s financial dishonesty, including,
without limitation, misappropriation of funds or property, or any attempt by
Vice President to secure any personal profit related to the business or
business opportunities of the Company without the informed, written approval of
the Company; (ii) Vice President’s willful refusal for at least ten (10) days
to comply with reasonable directives of the Company after receipt by Vice
President of prior written notice from the Company specifying such
noncompliance; (iii) gross negligence or reckless or willful misconduct in the
performance of Vice President’s duties; (iv) the failure to perform, or
continuing neglect in the performance of, duties assigned to Vice President for
at least ten (10) days after receipt by Vice President from the Company of
prior written notice of such failure or neglect; (v) misconduct which has a
materially adverse effect upon the Company’s business or reputation; (vi) Vice
President’s use of illicit or illegal drugs; (vii) Vice President’s abuse of
alcohol or prescription medication; (viii) the conviction of, or plea of nolo
contendre to, any felony or a misdemeanor involving moral turpitude or fraud;
(ix) continuing the material breach of any provision of this Agreement for at
least ten (10) days after receipt by Vice President from the Company of prior
written notice of such breach; (x) the violation of the Company’s policies
including, without limitation, the Company’s policies on equal employment
opportunity and prohibition of unlawful harassment, discrimination or
retaliation; or (xi) a violation of Paragraph 9 of this Agreement.


(d)           Any termination of Vice President’s employment by the Company or by Vice
President (other than termination pursuant to subsection (a) above) shall
be communicated by written Notice of Termination to the other Party hereto. 
For purposes of this Agreement, a “Notice of Termination” shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Vice President’s
employment under the provision so indicated.


(e)           “Date of Termination” shall mean (i)
if Vice President’s employment is terminated by his death, the date of his
death; (ii) if Vice President’s employment is terminated pursuant to
subsection (b) above, 15 days after Notice of Termination is given
(provided that Vice President shall not have returned to the performance of his
duties on a full-time basis during such 15 days period); (iii) if Vice
President’s employment is terminated at the expiration of the Term, Renewal
Term, or any extension thereof, the last day of the Term or, if applicable, the
last day of the Renewal Term or any extension; and (iv) if Vice President’s
employment is terminated for any other reason, the date the Notice of
Termination is given.


 



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11.           Compensation
upon Termination or During Disability.  Upon termination of Vice
President’s employment pursuant to the terms of this Agreement or during any
period of Vice President’s physical or mental disability, Vice President shall
be paid as follows:


(a)           The
Vice President shall continue to receive his annual base salary at the rate
then in effect during any Disability Period provided, however, that such
payments shall not continue beyond the earlier of (i) the end of the Term or,
if applicable, the Renewal Term, or (ii) the Date of Termination of this
Agreement by the Company pursuant to Section 10(e)(ii), provided that payments
so made to Vice President shall be reduced by the sum of the amounts, if any,
payable to Vice President under any disability benefit plans of the Company and
which were not previously applied to reduce any such payment.  In addition
the Company shall reimburse Vice President for any theretofore unreimbursed
expenses which were incurred prior to the commencement of the Disability
Period.


(b)           If Vice President’s employment is
terminated by his death, the Company shall pay to Vice President’s designated
beneficiaries, or if he leaves no designated beneficiaries, to his estate, his
annual base salary through the date of Vice President’s death at the rate then
in effect and any theretofore unreimbursed expenses and the Company shall have
no further obligations to Vice President under this Agreement.


(c)           If
Vice President’s employment shall be terminated for Cause, the Company shall pay
Vice President his annual base salary (but not the compensation described in
Section 4(c)) through the Date of Termination at the rate in effect at the
time Notice of Termination is given and the Company shall have no further
obligations to Vice President under this Agreement.


(d)           If 
the Company shall (i) terminate Vice President’s employment other than
pursuant to Section 10(a), 10(b) or 10(c) hereof; (ii) assign to Vice
President any duties materially inconsistent with Vice President’s position in
the Company; or (iii) assign to Vice President a title, office or status which
is inconsistent than that established herein (unless in the nature of a
promotion) then, in addition to reimbursement of  Vice President for any theretofore
unreimbursed expenses, the Company shall pay Vice President, with no offset, an
amount equal to the greater of (a) Vice President’s annual base salary at the
rate in effect at the time Notice of Termination is given for the unexpired
Term or, if applicable, Renewal Term of this Agreement and payment for any
accrued, but unused vacation days hereunder; or (b) six (6) months of Vice
President’s annual base salary at the rate in effect at the time Notice of
Termination is given and payment for any accrued, but untaken vacation days hereunder.  Such payments to be made in a single lump sum
within ten (10) days of the termination of this Agreement.


(e)           If Vice President shall terminate his
employment pursuant to Section 10(d) of this Agreement, the Company shall pay
Vice President, in addition to reimbursement of any theretofore unreimbursed
expenses, his full salary through the Date of Termination at the rate in effect
on the date that Notice of Termination is received by the Company, 



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plus payment for any accrued, but untaken vacation
days hereunder and the Company shall have no further obligation to Vice
President under this Agreement.


12.           Change
in Control Severance Benefit.  If
within twelve (12) months after the occurrence of a Change in Control (as
defined below) (i) the Company terminates Vice President’s employment for any
reason; or (ii) Vice President resigns at any time after any diminution in Vice
President’s job title, duties or compensation or the relocation of Vice
President, without Vice President’s consent, to an office in a county that does
not abut Tarrant County, Texas, the Company shall pay to Vice President, in a
lump sum, three times Vice President’s annual salary in effect as of the date
of Vice President’s termination or resignation and three times the sum of prior
year bonuses paid to Vice President and shall continue to provide to Vice
President, Vice President’s spouse and dependents, for a period of three years
after such termination or resignation, the right to participate in any health
and dental plans that the Company may maintain for its employees, on the same
basis as participation by such employees.


A “Change in Control” shall mean:


(a)
any consolidation, merger or share exchange of the Company in which the Company
is not the continuing or surviving corporation or pursuant to which shares of
the Company’s common stock would be converted into cash, securities or other
property, other than a consolidation, merger or share exchange of the Company
in which the holders of the Company’s common stock immediately prior to such
transaction have the same proportionate ownership of common stock of the
surviving corporation immediately after such transaction; (b) any sale, lease,
exchange or other transfer (excluding transfer by way of pledge or
hypothecation) in one transaction or a series of related transactions, of all
or substantially all of the assets of the Company; (c) the stockholders of the
Company approve any plan or proposal for the liquidation or dissolution of the
Company; (d) the cessation of control (by virtue of their not constituting
a majority of directors) of the Board by the individuals (the “Continuing Directors”)
who (x) at the Effective Date were directors or (y) become directors
after the Effective Date and whose election or nomination for election by the
Company’s stockholders was approved by a vote of at least two-thirds of the
directors then in office who were directors at the Effective Date or whose
election or nomination for election was previously so approved; (e) the
acquisition of beneficial ownership (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934) of an aggregate of 50% or more of the voting power of the
Company’s outstanding voting securities by any person or group (as such term is
used in Rule 13d-5 under the Securities Exchange Act of 1934) who beneficially
owned less than 50% of the
voting power of the Company’s outstanding voting securities on the Effective
Date of this Plan; provided, however, that notwithstanding the
foregoing, an acquisition shall not constitute a Change in Control hereunder if
the acquirer is (x) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company and acting in such capacity, (y) a
subsidiary of the Company or a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of voting securities of the Company or (z) any other person
whose acquisition of shares of voting securities is approved in advance by a
majority of the Continuing Directors; or (f) in a Title 11 bankruptcy
proceeding, the appointment of a trustee or the conversion of a case involving
the Company to a case under Chapter 7.



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Anything
in this Section 12 to the contrary notwithstanding, in the event it shall be determined
that any payment or distribution made, or benefit provided, by the Company to
or for the benefit of Vice President (whether paid or payable or distributed or
distributable or provided pursuant to the terms hereof or otherwise) would
constitute a “parachute payment” as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the “Code”), then the lump sum payment
payable pursuant to this Section 12 shall be reduced so that the aggregate
present value of all payments in the nature of compensation to (or for the
benefit of) Vice President which are contingent on a change of control (as
defined in Code Section 280G(b)(2)(A)) is One Dollar ($1.00) less than the
amount which Vice President could receive without being considered to have received
any parachute payment (the amount of this reduction in the lump sum severance
payment is referred to herein as the “Excess Amount”).  The determination of the amount of any
reduction required by this Section 12 shall be made by an independent accounting
firm (other than the Company’s independent accounting firm) selected by the
Company and acceptable to Vice President, and such determination shall be
conclusive and binding on the parties hereto.


13.           Defined
Terms.  For purposes of this Agreement, the terms set forth in this
Agreement shall have the following meanings:


(a)           “Affiliate”
shall mean any individual, corporation, unincorporated organization, trust or
other form of entity controlling, controlled by or under common control with
the Company.  For purposes of this definition, “control” (including “controlled
by” and “under common control with”) means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such individual, corporation, unincorporated organization, trust or
other form of entity, whether through the ownership of voting securities or
otherwise.


(b)           “Person” shall mean an individual, a
corporation, a partnership, an association, a joint-stock company, a trust, an
incorporated organization or a government or political subdivision thereof.


14.           Waiver.
No waiver of any provision of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a waiver of any continuing or succeeding breach of such
provision, a waiver of the provision itself, or a waiver of any right under
this Agreement.  No waiver shall be binding unless executed in writing by
the Party making the waiver.


15.            Limitation of Rights. 
Nothing in this Agreement, except as specifically stated herein, is intended to
confer any rights or remedies under or by reason of this Agreement on any
persons other than the Parties and their respective permitted successors and
assigns and other legal representatives, nor is anything in this Agreement
intended to relieve or discharge the obligation or liability of any third
persons to any Party to this Agreement, nor shall any provision give any third
persons any right of subrogation or action over against any Party to this
Agreement.



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16.            Notices.  During
the Employment Period of this Agreement Vice President shall give the Company
immediate notice of any change of address. 
All notices given in connection with this Agreement shall be in writing
and shall be delivered either by personal delivery, by telecopy or similar
facsimile means, by certified or registered mail (postage prepaid and return
receipt requested), or by express courier or delivery service, addressed to the
applicable Party hereto at the following address:


If to the Company:


Cano
Petroleum, Inc.

309 West Seventh Street

Suite 1600

Fort Worth, Texas 76102
Attention: S. Jeffery Johnson

Telecopy No.: 817-698-0761:


If to Vice President:


Patrick
M. McKinney

722 Ashleigh Lane

Southlake, TX  76092

Telephone:  817-424-2489

Telecopy No.: ____________


or such other address and number as either Party shall
have previously designated by written notice given to the other Party in the
manner hereinabove set forth.  Notices shall be deemed given when received,
if sent by telecopy or similar facsimile means (confirmation of such receipt by
confirmed facsimile transmission being deemed receipt of communications sent by
telecopy or other facsimile means); and when delivered and receipted for (or
upon the date of attempted delivery where delivery is refused), if
hand-delivered, sent by express courier or delivery service, or sent by
certified or registered mail.


17.           Inconsistent
Obligations. Vice President represents and warrants that he is not subject
to any undisclosed obligations inconsistent with those of this Agreement and
expressly warrants that he is not subject to a non-competition agreement with
any third-party that is inconsistent with the obligations set forth herein.


18.           Code
Section 409A; Delay of Payments.  The
terms of this Agreement have been designed to comply with the requirements of
Code Section 409A, as amended, where applicable, and shall be interpreted and
administered in a manner consistent with such intent.  Notwithstanding anything to the contrary in
this Agreement, (i) if upon the date of Vice President’s termination of
employment with the Company, Vice President is a “specified employee” within
the meaning of Code Section 409A, and the deferral of any amounts otherwise
payable under this Agreement as a result of Vice President’s termination of
employment is necessary in order to prevent any accelerated or additional tax
to Vice President under Code Section 409A, then the Company will defer the
payment of any such amounts hereunder until the 



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date that is six (6) months and one day following the
date of Vice President’s termination of employment with the Company at which
time any such delayed amounts will be paid to Vice President in a single lump
sum, with interest from the date otherwise payable at the prime rate as
published in The Wall Street Journal on the date of Vice President’s
termination of employment with the Company, and (ii) if any other payments of
money or other benefits due to Vice President hereunder could cause the application
of an accelerated or additional tax under Code Section 409A, such payments or
other benefits shall be deferred if deferral will make such payment or other
benefits compliant under Code Section 409A.


19.           Entirety
and Amendments. This instrument and the instruments referred to herein
embody the entire agreement between the Parties, supersede all prior agreements
and understandings, if any, relating to the subject matter hereof, and may be
amended only by an instrument in writing executed by all Parties, and
supplemented only by documents delivered or to be delivered in accordance with
the express terms hereof.


20.           Successors
and Assigns.  This Agreement will be binding upon and inure to the
benefit of the Parties hereto and any successors in interest to the Company,
but neither this Agreement nor any rights hereunder may be assigned by Vice
President or by the Company, except that the Company may assign this Agreement
to an Affiliate or successor in interest.


21.           Governing
Law And Venue.  This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas applicable to
agreements made and to be performed entirely in Texas, exclusive of any
provisions of Texas law which would apply the law of another jurisdiction. 
The obligations and undertakings of each of the Parties to this Agreement shall
be performable in Tarrant County, Texas, and each Party agrees that if any
action at law or in equity is necessary by the Company or Vice President to
enforce or interpret the terms of this Agreement, venue shall be in Tarrant
County, Texas.


22.           Cumulative
Remedies.  No remedy herein conferred upon any Party is intended to be
exclusive of any other benefits or remedy, and each and every such remedy shall
be cumulative and shall be in addition to every other benefits or remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.  No single or partial exercise by any Party of any right, power
or remedy hereunder shall preclude any other or further exercise thereof.


23.           Multiple
Counterparts. This Agreement may be executed and delivered by facsimile and
in a number of identical counterparts, each of which constitute collectively,
one agreement; but in making proof of this Agreement, it shall not be necessary
to produce or account for more than one counterpart.  This Agreement may be executed and delivered
via facsimile.


24.           Descriptive
Headings.  The headings, captions and arrangements used in this
Agreement are for convenience only and shall not be deemed to limit, amplify or
modify the terms of this Agreement, nor affect the meanings hereof.



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25.           Severability. 
The parties intend all provisions of this Agreement to be enforced to
the fullest extent permitted by law. 
Accordingly, if any provision of this Agreement is held illegal,
invalid, or unenforceable under present or future law, such provision shall be
fully severable, this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision were never a part hereof, and the
remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid, or unenforceable provision
or by its severance.


 



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Signatures


To evidence the binding effect of the covenants and
agreements described above, the Parties hereto have executed this Agreement
effective as of the Effective Date.


 


	
  

  	
  THE COMPANY:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CANO PETROLEUM, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
   

  	
  S. Jeffrey Johnson

  	
   

  
	
   

  	
   

  	
  CEO and Chairman

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  VICE PRESIDENT:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Patrick M. McKinney

  	
   

  
	
   

  	
   

  	
  Patrick M. McKinney

  	
   

  



 


 



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