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  EXHIBIT 10.85    
    

 
 

SECOND AMENDMENT TO EMPLOYMENT AGREEMENT

        THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment") 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  Morris B. Smith, an individual currently residing in Tarrant County, Texas ("Senior Vice President"), effective as of the 31st day of May,
 2008
(the "Amendment Effective Date"). 

        WHEREAS, the Company and Senior Vice President entered into that certain Employment Agreement dated as of June 1, 2006; and further
amended by First Amendment to Employment Agreement effective as of June 29, 2007 (the "Agreement"); and 

        WHEREAS, the Company and Senior Vice President now desire to amend, alter, modify and change the terms and provisions of the Agreement, as
follows. 

        NOW THERFORE, for and in consideration of the mutual benefits to be obtained hereunder and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confessed, Company and Senior Vice President do hereby agree to amend, alter, modify and change the Agreement, effective prospectively, as
of the Amendment Effective Date as follows: 

        1.    Section 2.    Term.
shall be deleted in its entirety and the following substituted in place and in lieu thereof.

        2.    Term.    The employment of Senior 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, 2011. 

Except
as specifically amended, altered, modified and changed hereby, the Agreement remains in full force and effect as originally written. 

Signatures

        To
evidence the binding effect of the covenants and agreements described above, the parties hereto have executed this Amendment effective as of the date Second above written. 

					
	
	 	 THE COMPANY:

	
	 	 CANO PETROLEUM, INC.

	
	 	 By:
	 	 /s/ S. JEFFREY JOHNSON

S. Jeffrey Johnson

Chairman and Chief Executive Officer
	
	 	 SENIOR VICE PRESIDENT:

	
	 	 By:
	 	 /s/ MORRIS B. SMITH

Morris B. Smith

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EXHIBIT 10.85

SECOND AMENDMENT TO EMPLOYMENT AGREEMENTQuickLinks
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  EXHIBIT 10.86    
    

THIRD AMENDMENT TO EMPLOYMENT AGREEMENT  

        THIS THIRD AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") 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 ("Senior Vice President," collectively, the "Parties"), effective
as of the 31st day of May, 2008 (the "Amendment Effective Date"). 

        WHEREAS, the Company and Senior Vice President entered into that certain Employment Agreement dated as of June 1, 2006, as amended
by First Amendment to Employment Agreement dated effective as of November 9, 2006 and by Second Amendment to Employment Agreement dated effective as of June 29, 2007 (as amended, the
"Agreement"); and 

        WHEREAS, the Company and Senior Vice President now desire to amend, alter, modify and change the terms and provisions of the Agreement, as
follows. 

        NOW THEREFORE, for and in consideration of the mutual benefits to be obtained hereunder and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confessed, the Company and Senior Vice President do hereby agree to amend, alter, modify and change the Agreement, effective prospectively,
as of the Amendment Effective Date as follows: 

        1.     Section 2.  Term. shall be deleted in its entirety and the following substituted in place and
in lieu thereof. 

        2.    Term.    The employment of Senior 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, 2011. 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 Senior 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) Senior 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. 

Except
as specifically amended, altered, modified and changed hereby and heretofore, the Agreement remains in full force and effect as originally written. 

Remainder of Page Intentionally Blank

Signatures Follow  

 

Signatures  

        To evidence the binding effect of the covenants and agreements described above, the Parties hereto have executed this Amendment effective as of the date first
above written. 

					
	 	 	THE COMPANY:
	

 	
 	
CANO PETROLEUM, INC.
	

 	
 	

By:	
 	

/s/ S. JEFFREY JOHNSON

S. Jeffrey Johnson

Chairman and Chief Executive Officer
	

 	
 	

SENIOR VICE PRESIDENT:
	

 	
 	

By:	
 	

/s/ PATRICK M. MCKINNEY

Patrick M. McKinney

2

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  EXHIBIT 10.87    
    

 
 

FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT

        THIS FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment") is made and entered into by and between  Cano Petroleum Inc., (formerly Huron Ventures, Inc.) a
Delaware corporation with its principal executive offices in Fort Worth, Texas (the
"Company"), and Michael J. Ricketts, an individual currently residing in Tarrant County, Texas ("Employee"), effective as of the 31st day of May,
2008 (the "Amendment Effective Date"). Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the below described Agreement. 

        WHEREAS, the Company and Employee entered into that certain Employment Agreement dated May 28th, 2004, but effective June 1,
2004, as amended by First Amendment to Employment Agreement effective as of January 1, 2006; by Second Amendment to Employment Agreement effective as of June 1, 2006; and further by
Third amendment to Employment Agreement effective June 29, 2007 (the "Agreement"); and 

        WHEREAS, the Company and Employee now desire to amend, alter, modify and change the terms and provisions of the Agreement, as follows. 

        NOW THEREFORE, for and in consideration of the mutual benefits to be obtained hereunder and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confessed, Company and Employee do hereby agree to amend, alter, modify and change the Agreement, as of the Amendment Effective Date as
follows: 

        1.    Section 2.    Term. shall be
deleted in its entirety and the following substituted in place and in lieu thereof.

        2.    Term.    The employment of Employee 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, 2011. 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 Employee 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) Employee 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. 

Except
as specifically amended, altered, modified and changed hereby and heretofore, the Agreement remains in full force and effect as originally written. 

 
 

  Remainder of Page Intentionally Blank
  Signatures Follow    
    

 

Signatures

        To
evidence the binding effect of the covenants and agreements described above, the parties hereto have executed this Amendment effective as of the date first above written. 

					
	
	 	 THE COMPANY:

	
	 	 CANO PETROLEUM, INC.

	
	 	 By:
	 	 /s/ S. JEFFREY JOHNSON

S. Jeffrey Johnson

Chairman and Chief Executive Officer
	
	 	 EMPLOYEE:

	
	 	 By:
	 	 /s/ MICHAEL J. RICKETTS

Michael J. Ricketts

2

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EXHIBIT 10.87

FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT

Remainder of Page Intentionally Blank Signatures FollowQuickLinks
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  EXHIBIT 10.88    
    

 
 

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 Phillip Feiner, an individual currently residing in Collin County, Texas
("Employee"), as of the 31st day of May, 2008 (the "Effective Date"). The Company and Employee may sometimes be referred to herein individually as "Party" and collectively as "Parties." 

 
 

  Background    
    

        A.    The
Company desires to employ Employee 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.    Employee
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 Employee in the capacity of Vice President, General Counsel and
Corporate Secretary, and Employee hereby agrees to accept such employment by the Company, upon the terms and conditions stated in this Agreement. 

        2.    Term.    The employment of Employee by the Company as provided in this Section will be for a term of three
(3) years (the "'Term" or "Employment Period") commencing on the Effective Date and expiring at the close of business on May 31st, 2011. 

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

        4.    Compensation.    

        (a)    Salary:    The Company shall pay Employee for his services, a base salary, on an annualized basis, of
$150,000.00 (One Hundred Fifty 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)    Bonus:    In addition to the base salary described in paragraph 4(a) above, Employee 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 Board of Directors of the Company. 

        (b)    Stock Award:    In addition to the base salary described in paragraph 4(a) above, Employee shall receive
30,000 shares of restricted common stock in the Company. The restrictions on the shares shall lapse in 10,000 share increments on each of May 30, 2009, May 30, 2010 and May 30,
2011, provided Employee 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
Employee and which will be awarded pursuant to the 2005 Cano Petroleum, Inc. Long Term Incentive Plan. 

 

        (c)    Raises:    Employee may receive increases in the base salary at the discretion of the Board of Directors of the
Company, which increased base salary shall become the base salary for purposes of this Agreement. 

        5.    Vacations and Days Off.    Employee shall be entitled to a reasonable paid vacation of not less than twenty
(20) days each calendar year during the Term (prorated for the first calendar year), exclusive of holidays and weekends, which vacation shall be taken by Employee 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. Employee 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 Employee'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 shall be suitable to Employee's
position or necessary for Employee to perform his assigned tasks, duties and responsibilities under this Agreement. 

        7.    Expenses and Services.    During the term of Employee's employment hereunder, Employee shall be entitled to
receive prompt reimbursement for all pre-approved, reasonable expenses incurred by Employee 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 term of Employee's employment hereunder, Employee 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 executive
officers on the same basis as other executive officers of the Company. 

        9.    Confidential Information.    Employee and the Company agree that, upon executing this Agreement, the Company
will provide Employee 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. Employee agrees not to disclose
such 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) while employed; or (ii) within the later of three years immediately following his termination of employment or the three years immediately following expiration of this
Agreement without renewal or replacement unless Employee has received the prior written consent of the Company. Upon termination of Employee's employment for any reason or upon a request, at any time,
by the Company, Employee shall promptly deliver to the Company 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 Employee's possession or under Employee's control. 

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

        (a)   Employee's
employment hereunder will terminate upon his death; 

        (b)   If,
as a result of Employee's incapacity due to physical or mental illness, Employee 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 

2

 

have
returned to the performance of his full duties hereunder on a full-time basis, the Company may terminate Employee's employment hereunder. 

        (c)   The
Company may terminate Employee's employment hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate Employee's employment
hereunder upon (i) the willful and continued failure by Employee to substantially perform his duties hereunder (other than any such failure resulting from Employee's incapacity due to physical
or mental illness); (ii) the willful engaging by Employee in misconduct which is injurious or disparaging to the Company; or (iii) the conviction of Employee of any felony or crime of
moral turpitude. For purposes of this
subsection (c), no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company. 

        (d)   Any
termination of Employee's employment by the Company or by Employee (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 Employee's employment under the provision so indicated. 

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

        11.    Compensation upon Termination or During Disability.    Upon termination of Employee's employment hereunder or
during any period of Employee's physical or mental disability, Employee shall be paid as follows: 

        (a)   Employee
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 (ii) the Date of Termination of this Agreement by the Company pursuant to Section 10(e)(ii), provided that payments so
made to Employee shall be reduced by the sum of the amounts, if any, payable to Employee 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 Employee for any theretofore unreimbursed expenses which were incurred prior to the commencement of the Disability Period. 

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

        (c)   If
Employee's employment shall be terminated for Cause, the Company shall pay Employee his annual base salary (but not the compensation described in
Sections 4(b)) 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 Employee under this
Agreement. 

        (d)   If
the Company shall (i) terminate Employee's employment other than pursuant to Section 10(b) or 10(c) hereof; (ii) assign to Employee any duties
materially inconsistent with 

3

 

Employee's
position in the Company; or (iii) assign to Employee 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 Employee for any theretofore unreimbursed expenses, the Company shall pay Employee, with no offset, an amount equal to the greater of (a) Employee's annual base
salary at the rate in effect at the time Notice of Termination is given, for the unexpired term of this Agreement and payment for any accrued, but unused vacation days hereunder; or 

(b) six (6) months of Employee'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. 

During
the term of this Agreement Employee shall give the Company immediate notice of any change of address. 

If
Employee shall terminate his employment pursuant to Section 10(d), the Company shall pay Employee, 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, plus payment for any accrued, but untaken vacation days hereunder and the
Company shall have no further obligation to Employee 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 Employee's employment for any reason; or (ii) Employee resigns at any time after any diminution in Employee's job title, duties or
compensation or the relocation of Employee, without Employee's consent, to an office in a county that does not abut Tarrant County, Texas, the Company shall pay to Employee, in a lump sum, three times
Employee's annual salary in effect as of the date of Employee's termination or resignation and three times the sum of prior year bonuses paid to Employee and shall continue to provide to Employee,
Employee'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 

4

 

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. 

        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 Employee (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) Employee 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 Employee 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 Employee, 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. 

        16.    Notices.    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 

5

 

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.

Burnett Plaza

801 Cherry Street

Suite 3200, Unit 25

Fort Worth, Texas 76102

Attention: S. Jeffery Johnson

Telecopy No.: 817.698.0761 

        If
to Employee: 

Phillip
Feiner

3608 Adavale Drive

Plano, Texas 75025

Telephone: 972.335.1728 

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.    Employee represents and warrants that he is not subject to any undisclosed
obligations inconsistent with those of this Agreement. 

        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 Employee's termination of employment with the Company, Employee 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 Employee's termination of employment is necessary in order to prevent any accelerated or additional tax to Employee under
Code Section 409A, then the Company will defer the payment of any such amounts hereunder until the date that is six (6) months and one day following the date of Employee's termination of
employment with the Company at which time any such delayed amounts will be paid to Employee 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 Employee's termination of employment with the Company, and (ii) if any other payments of money or other benefits due to Employee 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 

6

 

hereunder
may be assigned by Employee or by the Company, except that the Company may assign this Agreement to an Affiliate. 

        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 Employee 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. 

        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. 

 
 

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
	
	 	 EMPLOYEE:

	
	 	 By:
	 	 /s/ PHILLIP FEINER

Phillip Feiner

7

QuickLinks

EXHIBIT 10.88

EMPLOYMENT AGREEMENT

Background

Terms and Conditions

Signatures

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