CANO PETROLEUM, INC
EXHIBIT 10.96
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<TYPE>EX-10.96
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<DESCRIPTION>EXHIBIT 10.96
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<P ALIGN="RIGHT"><FONT SIZE=2><B>EXHIBIT 10.96  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="la17202_first_amendment_to_the_cano_pe__fir03355"> </A>
<A NAME="toc_la17202_1"> </A>
<BR></FONT><FONT SIZE=2><B>FIRST AMENDMENT TO THE<BR>  CANO PETROLEUM,&nbsp;INC.<BR>  EMPLOYEE RESTRICTED STOCK AWARD AGREEMENT    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This FIRST AMENDMENT (the "</FONT><FONT SIZE=2><B><I>Amendment</I></B></FONT><FONT SIZE=2>") to the Employee Restricted Stock Award Agreement (the
"</FONT><FONT SIZE=2><B><I>Agreement</I></B></FONT><FONT SIZE=2>") dated&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2007, is hereby made and entered as of the 20<SUP>th</SUP> day of August, 2007 by and between Cano
Petroleum,&nbsp;Inc., a Delaware corporation (the "</FONT><FONT SIZE=2><B><I>Company</I></B></FONT><FONT SIZE=2>")
and&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(the "</FONT><FONT SIZE=2><B><I>Participant</I></B></FONT><FONT SIZE=2>").
Terms used in this Amendment with initial capital letters that are not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>WHEREAS</B></FONT><FONT SIZE=2>, Section&nbsp;17 of the Agreement provides that the parties to the Agreement may change or modify the Agreement in a writing
signed by the parties; and </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>WHEREAS</B></FONT><FONT SIZE=2>, the parties desire to amend the Agreement's vesting provisions to reflect changes made by the Compensation Committee of Cano
Petroleum,&nbsp;Inc., on August&nbsp;20, 2007. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>NOW THEREFORE</B></FONT><FONT SIZE=2>, pursuant to Section&nbsp;17 of the Agreement, in consideration of the mutual promises, conditions and covenants contained
herein and in the Agreement, and other good and valuable consideration, the adequacy of which is hereby acknowledged, the parties agree as follows: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>Section&nbsp;3
of the Agreement shall be amended in its entirety to read as follows:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2><I>Vesting</I></FONT><FONT SIZE=2>. 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: </FONT></DD></DL>
</DD></DL>
</UL>
<UL>
<UL>
<UL>

<P><FONT SIZE=2>[Vesting
information to be provided in each individual agreement]. </FONT></P>

<P><FONT SIZE=2>Notwithstanding
the foregoing, in the event that a Change in Control occurs, then immediately prior to the effective date of such Change in Control, the total restricted stock not previously vested
shall thereupon immediately become vested. </FONT></P>

</UL>
</UL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>************* </FONT></P>

<P><FONT SIZE=2><B>IN WITNESS WHEREOF</B></FONT><FONT SIZE=2>, the parties hereto have executed this Amendment the day and year first above written. </FONT></P>

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<FONT SIZE=2><A HREF="#toc_la17202_1">FIRST AMENDMENT TO THE CANO PETROLEUM, INC. EMPLOYEE RESTRICTED STOCK AWARD AGREEMENT</A></FONT><BR>
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