Exhibit 10.1
CONSULTING
AGREEMENT
THIS CONSULTING AGREEMENT (this
“ Agreement ”) is made and entered into
as of October 1, 2008 (the “ Effective
Date ”) by and between Cano Petroleum, Inc., a
Delaware corporation (the “ Company ”),
and Morris B. Smith (“ Consultant
”). The Company and Consultant are referred to in this
Agreement as the “ Parties .”
RECITALS
WHEREAS, Consultant has agreed to
undertake certain duties and responsibilities and to perform
certain consulting services for the period beginning on the
Effective Date and ending September 30, 2009, all as more
fully described in this Agreement; and
WHEREAS, the Company desires to
engage Consultant to undertake certain duties and responsibilities
and to perform certain consulting services, all as more fully
described in this Agreement.
AGREEMENT
NOW, THEREFORE, for and in
consideration of the foregoing premises and the provisions hereof
and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as
follows:
1.
Position and
Services .
a.
Consulting Services . During the period commencing on
the Effective Date and ending on September 30, 2009 (the
“ Consulting Period ”), subject to the
terms of this Agreement (including the extension and early
termination provisions set for in Section 3.a . below),
the Company agrees to retain Consultant and Consultant agrees to
serve, as a consultant to the Company for the purpose of providing
advice and offering other assistance to the Company’s Chief
Executive Officer (“ CEO ”), consistent
with the resources of Consultant, on matters as the CEO reasonably
requests (the “ Consulting Services
”). The Company has agreed to retain Consultant as a
consultant in reliance on the special and unique abilities of
Consultant in rendering the Consulting Services and Consultant will
use Consultant’s reasonable efforts, skills, judgment and
abilities in rendering the Consulting Services. Consultant
shall perform the Consulting Services in a diligent, trustworthy,
and businesslike manner, with the purpose of advancing the business
of the Company. Consultant’s duties during the
Consulting Period shall require Consultant to perform Consulting
Services for the Company at least fifteen (15) hours per
month. Consultant shall not perform non-Company related tasks
on the Company’s property.
b.
Nature of Relationship Between Parties . During the
Consulting Period, Consultant shall render the Consulting Services
in this Agreement as an independent contractor. Except as
otherwise agreed by the Company, Consultant will have no authority
or power to bind the Company regarding third parties or to
represent to third parties that Consultant has authority or power
to bind the Company. It is not the intention of the Parties
to create, by virtue of this Agreement, any employment
relationship, trust, partnership or joint venture between
Consultant and the Company or any of its affiliates or, except as
specifically provided herein, to make them legal representatives or
agents of each other or to create any fiduciary relationship or
additional contractual relationship among them for the duration of
the Consulting Period. As an independent contractor,
Consultant will not be eligible for any Company-provided benefits,
including, without limitation, medical, retirement, short term
disability and long term disability.
2.
Consideration
.
a.
Consulting Fee
. During the Consulting
Period, the Company shall pay Consultant a monthly consulting fee
of: (a) three thousand dollars ($3,000) for up to the first
fifteen (15) hours of service rendered by Consultant during such
month; and (b) two hundred dollars ($200) for each hour of
service above fifteen (15) hours of service provided by Consultant
during such month (the “ Consulting Fees
”), which shall be payable in accordance with the following
schedule:
i.
For the period beginning on the Effective Date and ending on
March 15, 2009, the Consulting Fees shall be payable in
bi-weekly installment payments in accordance with the
Company’s payroll practices;
ii.
For the period beginning on March 16, 2009 and ending on
April 1, 2009, the Consulting Fees shall be payable in one
lump sum payment on April 2, 2009; and
iii.
For all periods during the Consulting Period after April 1,
2009, the Consulting Fees shall be payable in bi-weekly installment
payments in accordance with the Company’s payroll
practices.
Each payment made pursuant to this
Section 2.a. shall be treated as a separate payment for
purposes of Section 409A of the Internal Revenue Code of 1986,
as amended (the “ Code ”). For
purposes of clarity, any amounts earned during the period beginning
on March 16, 2009 and ending on the last day of the sixth
month following the Effective Date shall not be paid until the
first day of the seventh month following the Effective
Date.
b.
Payments . The consideration described in this
Section 2 shall be the sole compensation to which
Consultant shall be entitled for performance of the Consulting
Services.
c.
Reimbursement of Expenses . Consultant shall be entitled to
receive reimbursement for all reasonable expenses incurred by
Consultant in performing his duties and responsibilities under this
Agreement, consistent with the Company’s policies or
practices for reimbursement of expenses incurred by its independent
contractors.
d.
Payment of Taxes . With respect to the Consulting
Services, Consultant agrees to be solely responsible for
withholding taxes or necessary payments to any taxing authority
based on the Company’s payment of the consideration for the
Consulting Services under this Agreement. Consultant further
agrees not to seek or make any claim against the Company, its
subsidiaries or any of their directors or employees for
compensation, damages, costs, interest, fees, assessments,
withholdings, penalties or other losses, should a claim or
determination be made that Consultant has failed to withhold or
make the payments contemplated by the preceding sentence. The
withholdings referenced in this Section 2.d. include,
without limitation, Federal and State income taxes, FICA, and
Medicare.
e.
Facilities . During the Consulting Period, the Company
will furnish Consultant with office space, equipment, supplies, and
such other facilities and personnel as the Company deems necessary
or appropriate for the performance of the Consulting
Services.
f.
2005 LTIP Benefits . Exhibit A , attached
hereto and incorporated herein, sets forth as of September 30,
2008, all outstanding and unvested awards of restricted stock (the
“ Restricted Stock Awards ”) previously
granted to Consultant under the Cano Petroleum, Inc. 2005
Long-Term Incentive Plan (the “ 2005 LTIP
”). The Parties both acknowledge and agree that, other
than the Restricted Stock Awards, as of the Effective Date, there
are no other outstanding and unvested awards that were previously
granted to Consultant. As additional consideration for
Consultant’s agreement to perform the Consulting Services, on
September 30, 2008, the Company’s Compensation Committee
vested certain shares subject to the Restricted Stock Awards, as
shown on Exhibit A . With respect to Restricted
Stock Awards, the Parties further agree and acknowledge that
Consultant’s performance of the Consulting Services shall not
be sufficient to prevent a “Termination of Service” (as
defined in the 2005 LTIP) for purposes of such awards, and, except
to the extent otherwise provided in this Section 2.f. ,
the Parties agree that all unvested shares subject to the
Restricted Stock Awards terminated and were forfeited as of the
date Consultant ceased providing services to the Company as an
employee.
3.
Termination
.
a.
Termination . Except as otherwise provided in this
Section 3.a. , this Agreement shall be effective for
the Consulting Period described in Section 1.a. above,
provided, however, that the Consulting Period shall be
automatically extended for successive one-year terms unless and
until terminated (upon the earliest of the following): (a) by
the death or Disability (defined below) of Consultant, in which
case the Consulting Period and this Agreement shall terminate
immediately; or (b) by any party hereto for any reason,
pursuant to a written notice provided by such party to the other
party at least thirty (30) days prior to the date of termination,
in which case this Agreement, and the Consulting Period shall
terminate as of the date of termination provided in such written
notice. Upon termination of the Consulting Period, the
Company will have no obligation whatsoever to Con
