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Chief Financial Officer Employment Agreement

This is an actual contract by Cano Petroleum,.

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Sectors: Energy
Governing Law: Texas, View Texas State Laws
Effective Date: June 01, 2006
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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 Morris B. Smith , an individual currently residing in Parker County, Texas ("Senior Vice President"), as of the 1st day of June, 2006 (the "Effective Date"). The Company and Senior Vice President may sometimes be referred to herein individually as "Party " and collectively as "Parties."



Background



A. The Company desires to employ Senior 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. Senior 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 Senior Vice President in the capacity of Senior Vice President and Chief Financial Officer, and Senior 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 Senior Vice President by the Company as provided in this Section will be for a term of three (3) years (the 91"Term" or "Employment Period") commencing on the Effective Date and expiring at the close of business on May 31st, 2009.



3. Duties . Senior Vice President 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. Senior Vice President 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 Senior Vice President for his services, a base salary, on an annualized basis, of $240,000.00 (Two Hundred Forty 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 Company92s normal payroll



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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, Senior 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 Board of Directors of the Company.



(b) Stock Award: In addition to the base salary described in paragraph 4(a) above, Senior Vice President shall receive 60,000 shares of restricted common stock in the Company. The restrictions on the shares shall lapse in 20,000 share increments on each of May 30, 2007, May 30, 2008 and May 30, 2009, provided Senior 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 Senior Vice President and which will be awarded pursuant to the 2005 Cano Petroleum, Inc. Long Term Incentive Plan.



(c) Raises: Senior Vice President 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 . Senior Vice President 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 Senior 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. Senior 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 Senior Vice President92s 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 Senior Vice President92s position or necessary for Senior Vice President to perform his assigned tasks, duties and responsibilities under this Agreement.



7. Expenses and Services . During the term of Senior Vice President92s employment hereunder, Senior Vice President shall be entitled to receive prompt reimbursement for all pre-approved, reasonable expenses incurred by Senior 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 term of Senior Vice President92s employment hereunder, Senior Vice President shall be entitled to participate in any employee



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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 . Senior Vice President and the Company agree that, upon executing this Agreement, the Company will provide Senior 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. Senior Vice President 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 Senior Vice President has received the prior written consent of the Company. Upon termination of Senior Vice President92s employment for any reason or upon a request, at any time, by the Company, Senior Vice President 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 Company92s business (and all copies) which are in Senior Vice President92s possession or under Senior Vice President92s control.



10. Early Termination . Senior Vice President92s employment hereunder may be terminated without any breach of this Agreement only under the following circumstances:



(a) Senior Vice President92s employment hereunder will terminate upon his death;



(b) If, as a result of Senior Vice President92s incapacity due to physical or mental illness, Senior 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 Senior Vice President92 s employment hereunder.



(c) The Company may terminate Senior Vice President92s employment hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate Senior Vice President92s employment hereunder upon (i) the willful and continued failure by Senior Vice President to substantially perform his duties hereunder (other than any such failure resulting from Senior Vice President92s incapacity due to physical or mental illness); (ii) the willful engaging by Senior Vice President in misconduct which is injurious or disparaging to the Company; or (iii) the conviction of Senior Vice President of any felony or crime of moral turpitude. For purposes of this subsection (c), no act, or failure to act, on Senior Vice President92s part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and



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