Document:

Exhibit 10.5

 

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,

 

Morris B. Smith

(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 60,000 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, the Awarded Shares shall be vested as
follows:

 

a.               One-third (1/3) of the total Awarded Shares shall
vest on May 30, 2007, 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.

 

b.              An additional
one-third (1/3) of
the total Awarded Shares shall vest on May 30, 2008, provided the
Participant is employed (or, if the Participant is a Consultant, is providing
services to) to Company or a Subsidiary on that date.

 

c.               The remaining one-third
(1/3) of the total
Awarded Shares shall vest on May 30, 2009, provided the Participant is
employed (or, if the Participant is a Consultant, is providing services to) to
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.

 

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

 

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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 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.

 

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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
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 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.

 

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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

 

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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 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:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature:

  	
  /s/ Morris B. Smith

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: MORRIS B. SMITH

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  309 West Seventh St., Suite 1600

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Fort Worth, TX 76102

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
						

 

7Exhibit 10.6

 

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,

 

James K. Teringo, Jr.

(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 20,000 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.

 

 

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

 

2

 

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

 

3

 

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/ James K. Teringo, Jr.

  	
   

  
	
   

  	
  Signature

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  JAMES K. TERINGO, JR.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
  309 West Seventh St., Suite 1600

  	
   

  
	
   

  	
   

  	
  Fort Worth, TX 76102

  	
   

  
	
   

  	
   

  	
   

  	
   

  
								

 

6

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