Exhibit 10.1

 

PURCHASE AND SALE AGREEMENT

 

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is made and entered into as
of the 16th day of August, 2004, by and between Cano Energy Corporation, a Texas
Corporation (“Seller”), and Cano Petroleum, Inc., a Texas Corporation (“Buyer”).

 

BACKGROUND

 

A.                                   Seller owns an overriding royalty interest
(the “ORRI”) in and to the oil, gas and minerals produced and saved by virtue of
the Oil, Gas and Mineral Leases located in Lincoln County, Oklahoma covering
2,178 acres, more or less, and known more particularly as the Davenport unit
described in Annex A attached hereto and incorporated herein by reference for
all purposes.

 

B.                                     Seller is hereby selling to Buyer, and
Buyer is hereby purchasing from Seller, ten percent (10.0%) of eight-eighths
(8/8ths) of the ORRI (the “Purchased ORRI”).

 

C.                                     Buyer is currently managing Seller’s
accounting and records system (the “System”) and is correcting all material
defects of the System related to management and control of the System prior to
September 1, 2004 (“Material Defects”) before turning over management and
control of the System to Seller on or before September 16, 2004.

 

TERMS AND CONDITIONS

 

In consideration of the mutual benefits to be derived and the covenants,
conditions and promises herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:

 

1.                                       Transaction.

 

1.1                                 Purchase and Sale.  Subject to the terms and
conditions of this Agreement, Seller hereby sells, transfers and delivers to
Buyer, and Buyer hereby purchases the Purchased ORRI.

 

1.2                                 Consideration.  As consideration for the
sale and transfer of the Purchased ORRI by Seller, (1) Buyer is paying Seller in
cash the sum of Six Hundred Sixty Seven Thousand and No/100 Dollars
($667,000.00) (the “Purchase Price”) and (2) Buyer is correcting Material
Defects of the System.

 

2.                                       Covenants.

 

2.1                                 Payment Schedule.  Upon execution of this
Agreement, Buyer shall pay Seller in cash the sum of Five Hundred Twenty-Five
Thousand and No/100 Dollars ($525,000.00).  Buyer shall pay in cash the balance
due Seller of One Hundred Forty-Two Thousand and No/100 Dollars ($142,000.00) on
or before October 16, 2004.  The Effective Time (as defined in Annex B) shall be
increased by one day for every day after October 16, 2004 that a balance remains
due Seller on the Purchase Price.

 

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2.2                                 The System.  Before September 16, 2004,
Buyer warrants that the System shall have no Material Defects.  The Effective
Time shall be increased by one day for every day the System retains Material
Defects after September 15, 2004.  The adjustment of the Effective Time due to
Material Defects shall be in addition to adjustments to the Effective Time due
to delays in full payment of the Purchase Price.  The System shall be deemed
free of Material Defects when Seller’s accounting software, OGAS, reports an
accurate balance sheet, historical income statement and historical cash flow
statement since inception for an August 31, 2004 report date.

 

2.3                                 Overriding Royalty Assignment.  As soon as
reasonably practical following the receipt of the full Purchase Price by Seller
(the “Payment Date”), but no later than ten days from the Payment Date, Seller
shall assign the Purchased ORRI to Buyer.  The assignment of the Purchased ORRI
shall be in substantially the form attached hereto as Annex “B” and incorporated
herein by reference for all purposes.

 

2.4                                 Transaction Expenses.  Except as expressly
otherwise provided herein, each party to this Agreement shall bear its
respective expenses incurred in connection with the preparation, execution and
performance of this Agreement and the transactions contemplated hereby,
including all fees and expenses of agents, representatives, counsel and
accountants.  In the case of termination of this Agreement, the obligation of
each party to pay its own expenses shall be subject to any rights of such party
arising from a breach of this Agreement by another party.

 

2.5                                 Confidentiality.  Each party hereto will
maintain in strictest confidence, and not use to the detriment of any party
hereto, any written, oral or other information obtained in confidence from any
other party hereto regarding the transactions contemplated by this Agreement;
provided, however, this confidentiality restriction shall not be applicable if
(i) the information to be divulged is already known to the divulging party as a
result of being obtained from others not bound by a duty of confidentiality;
(ii) the information becomes publicly available through no fault of the
divulging party; (iii) the use of the information is necessary or appropriate in
making any filings or obtaining any consent or approval required for the
consummation of the transactions contemplated hereby; or (iv) the furnishing or
use of the information is required by or necessary or appropriate in connection
with legal proceedings.

 

3.                                       Miscellaneous.

 

3.1                                 Notices.  Except as otherwise set forth
herein, 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 mail, return receipt requested, or
by express courier or delivery service, addressed to the parties hereto at the
following addresses:

 

Seller:

 

c/o Peter Partain

309 West Seventh Street

Suite 1600

Fort Worth, Texas 76102

Telecopy No.: 817-698-0760

 

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Buyer:

 

c/o Jeff Johnson

309 West Seventh Street

Suite 1600

Fort Worth, Texas 76102

Telecopy No.: 817-698-0900

 

or at 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,
return receipt requested.

 

3.2                                 Further Assurances.  The parties hereto
agree (i) to furnish upon request to each other such further information; (ii)
to execute and deliver to each other such other documents; and (iii) to do such
other acts and things, all as the other party hereto may at any time reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to herein.

 

3.3                                 Waiver. The rights and remedies of the
parties to this Agreement are cumulative and not alternative.  Neither the
failure nor any delay on the part of any party in exercising any right, power or
privilege under this Agreement or the documents referred to herein shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right,
power or privilege preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  To the maximum extent
permitted by applicable law, (i) no claim or right arising out of this Agreement
or the documents referred to herein can be discharged by one party hereto, in
whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party hereto; (ii) no waiver which may be given by a
party hereto shall be applicable except in the specific instance for which it is
given; and (iii) no notice to or demand on one party hereto shall be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to herein.

 

3.4                                 Entire Agreement and Modification.  This
Agreement is intended by the parties to this Agreement as a final expression of
their agreement with respect to the subject matter hereof, and are intended as a
complete and exclusive statement of the terms and conditions of that agreement. 
This Agreement may not be modified, rescinded, or terminated orally, and no
modification, rescission, termination or attempted waiver of any of the
provisions hereof (including this Section) shall be valid unless in writing and
signed by the party against whom the same is sought to be enforced.

 

3.5                                 Assignments, Successors and No Third-Party
Rights.  Neither this Agreement nor any of the rights and obligations hereunder
may be assigned by either party without the express written consent of the other
party hereto.  This Agreement shall apply to and be binding in all respects
upon, and shall inure to the benefit of, the successors and permitted

 

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assigns of the parties hereto.  Nothing expressed or referred to in this
Agreement is intended or shall be construed to give any person or entity other
than the parties to this Agreement any legal or equitable right, remedy or claim
under or with respect to this Agreement, or any provision hereof, it being the
intention of the parties hereto that this Agreement and all of its provisions
and conditions are for the sole and exclusive benefit of the parties to this
Agreement, their successors and permitted assigns, and for the benefit of no
other person or entity.

 

3.6                                 Severability.  In the event any court of
competent jurisdiction shall hold any provision of this Agreement invalid or
unenforceable, such holding shall not invalidate or render unenforceable any
other provisions hereof.  Any provision of this Agreement held invalid or
unenforceable only in part or degree shall remain in full force and effect to
the extent not held invalid or unenforceable.

 

3.7                                 Section Headings, Construction.  The
headings of articles and sections contained in this Agreement are provided for
convenience only.  They form no part of this Agreement and shall not affect its
construction or interpretation.  All references to articles and sections in this
Agreement refer to the corresponding articles and sections of this Agreement. 
All words used herein shall be construed to be of such gender or number as the
circumstances require.  Unless otherwise specifically noted, the words “herein,”
“hereof,” “hereby,” “hereinabove,” “hereinbelow,” “hereunder,” and words of
similar import, refer to this Agreement as a whole and not to any particular
section, subsection, paragraph, clause or other subdivision hereof.

 

3.8                                 Consent or Permission Not to be Unreasonably
Withheld.  Except as otherwise expressly stated herein, whenever the consent or
permission of a party hereto is required hereunder, such consent or permission
shall not be unreasonably withheld or delayed.

 

3.9                                 Time of Essence.  With regard to all time
periods set forth or referred to in this Agreement, time is of the essence.

 

3.10                           Governing Law.  This Agreement shall be governed
by, and construed under, the laws of the State of Texas without regard to
conflicts of laws, all rights and remedies being governed by such laws.

 

3.11                           Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original copy
of this Agreement, and all of which, when taken together, shall be deemed to
constitute but one and the same agreement.

 

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Signatures

 

To evidence the binding effect of the covenants and agreements described above,
Seller (by its duly authorized general partner) and Buyer (by its duly
authorized officer) have each caused this Agreement to be executed as of the
date first written above.

 

 

Seller:

 

 

 

CANO ENERGY CORPORATION

 

 

 

 

 

 

By:

 

 

 

Peter Partain

 

 

President

 

 

 

Buyer:

 

 

 

CANO PETROLEUM, INC.

 

 

 

 

 

 

By:

 

 

 

Jeff Johnson

 

 

President

 

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Annex “A”

To

Purchase and Sale Agreement

 

The Oil, Gas and Mineral Leases

 

Wells and Interests

 

Well Name:

 

Legal Description:

 

Interest Owned:

 

 

 

 

 

Davenport #4

 

NE/4 NW/4 SE/4 §34-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #18

 

NE/4 SE/4 SE/4 §34-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #23

 

SE/4 SE/4 SW/4 §34-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #16

 

NW/4 SW/4 SE/4 §35-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #184

 

NW/4 SW/4 SE/4 §35-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #163

 

SE/4 SE/4 SW/4 §35-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #143

 

NW/4 NE/4 NW/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #185

 

W/2 NW/4 NE/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #146

 

SE/4 NW/4 NE/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #35

 

SE/4 NW/4 NE/4 §3-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #133

 

NW/4 SW/4 NE/4 §3-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #43

 

NW/4 SE/4 NE/4 §3-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #11

 

SE/4 NW/4 SE/4 §34-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #21

 

NE/4 SE/4 NW/4 §34- T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #173

 

SW/4 SE/4 SW/4 §34-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #26

 

SW/4 SE/4 SE/4 §34-T15N-R5E

 

WI-100%

 

6

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Davenport #13

 

SW/4 NE/4 SE/4 §35-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #160

 

NVIT/4NE/4NE/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #54

 

SW/4 SW/4NE/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #112

 

SW/4 NW/4 SW/4 §2-T14N-R-5E

 

WI-100%

 

 

 

 

 

Davenport #71

 

SW/4 SW/4 SE/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #176

 

SE/4 NE/4 SW/4 §35-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #76

 

NE/4 SE/4 SW/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #25

 

SE/4 SW/4 SE/4 §34-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #175

 

NE/4 SE/4 SW/4 §35-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #14

 

SE/4 NW/4 SE/4 §35-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #28

 

SE/4 SW/4 SE/4 §35-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #186

 

S/2 SE/4 SE/4 §35-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #31

 

NW/4 NE/4 NW/4 §3- T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #42

 

NW/4 SW/4 NW/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #55

 

SE/4 SW/4 NE/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #66

 

SE/4 NW/4 SW/4 §2- T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #59

 

NW/4 SE/4 SW/4 §2- T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #125

 

E/2 SE/4 SW/4 §2- T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #70

 

SE/4 NE/4 SW/4 §2-T14N-R5E

 

WI.-100%

 

 

 

 

 

Davenport #72

 

SE/4 NW/4 SW/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #77

 

NW/4 SE/4 SW/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #75

 

NW/4 SW/4 SE/4 §2-T14N-R5E

 

WI-100%

 

7

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Davenport #166

 

SW/4 SW/4 SW/4 §35-T15N-R5E

 

WI-100%

 

 

 

 

 

Davenport #156

 

NE/4 NW/4 NE/4 §2-T14N-R5E

 

WI-I00%

 

 

 

 

 

Davenport #170

 

SE/4 NE/4 NW/4 §3-T14N-R5E

 

WI-I00%

 

 

 

 

 

Davenport #53

 

SE/4 SE/4 NW/4 §2-TI4N-R5E

 

WI-I00%

 

 

 

 

 

Davenport #172

 

SW/4 NE/4 NW/4 §3-TI4N-R5E

 

WI-I00%

 

 

 

 

 

Davenport #60

 

NE/4 NW/4 SW/4 §2-TI4N-R5E

 

WI-I00%

 

 

 

 

 

Davenport #69

 

SW/4NE/4 SW/4 §2-TI4N-R5E

 

WI-100%

 

 

 

 

 

Davenport #120

 

NE/4 SW/4 SW/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #74

 

NE/4 SW/4 SE/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #172

 

SW/4 NE/4 NW/4 §3-T14N-R5E

 

WI-I00%

 

 

 

 

 

Davenport #58

 

NW/4 NW/4 SE/4 §2-TI4N-R5E

 

WI-100%

 

 

 

 

 

Davenport #177

 

SW/4 NE/4 SE/4 §35-T15N-R5E

 

WI-I00%

 

 

 

 

 

Davenport #27

 

SW/4 SW/4 SE/4 §35-TI5N-R5E

 

WI-100%

 

 

 

 

 

Davenport #142

 

NE/4 NE/4 NW/4 §2-T14N-R5E

 

WI-I00%

 

 

 

 

 

Davenport #141

 

SW/4 NE/4 NW/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #37

 

NW/4 SE/4 NE/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #44

 

NE/4 SW/4 NE/4 §3-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #115

 

SE/4 SE/4NE/4 §3-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #51

 

SE/4 SW/4 NW/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #119

 

NE/4 NE/4 SW/4 §2- T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #84

 

SW/4 SE/4 SW/4 §2-T14N-R5E

 

WI-100%

 

 

 

 

 

Davenport #30

 

NE/4 NE/4 NW/4 §3-T14N-R5E

 

WI-100%

 

8

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Annex “B”

To

Purchase and Sale Agreement

 

Assignment of Overriding Royalty Interest

 

9

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ASSIGNMENT OF OVERRIDING ROYALTY

 

THIS ASSIGNMENT OF OVERRIDING ROYALTY (this “Assignment”), effective as of
October 1, 2004, at 12:00 a.m., Central Daylight Time (the “Effective Time”), is
from Cano Energy Corporation, a Texas Corporation (“Assignor”), to Cano
Petroleum, Inc., a Texas Corporation (“Assignee”).

 

ASSIGNMENT AND CONVEYANCE

 

For and in consideration of $10.00 and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Assignor does
hereby bargain, sell, transfer, assign and convey to Assignee, a ten percent
(10.0%) overriding royalty interest with respect to the oil, gas and other
minerals produced and saved by virtue of the Oil, Gas and Mineral Leases
described in Annex “A” attached hereto and incorporated herein by reference for
all purposes (the “Leases”), free and clear of all costs and expenses except
applicable taxes.

 

TO HAVE AND TO HOLD the overriding royalty interest herein conveyed, together
with all rights, privileges and appurtenances in any way belonging or pertaining
thereto, unto Assignee, its successors and assigns, forever.  This Assignment is
also made without warranty or recourse whatsoever, but with full transfer,
substitution and subrogation, but with all the rights and actions of warranty
that Assignor may have.

 

Signature

 

To evidence the binding effect of the foregoing, Assignor has caused this
Assignment to be executed by its duly authorized officer this      day of
October 2004, but effective as of the Effective Time.

 

 

 

CANO ENERGY CORPORATION

 

 

 

 

 

By:

 

 

 

 

Peter Partain

 

 

 

President

 

 

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STATE OF OKLAHOMA

§

 

§

COUNTY OF LINCOLN

§

 

This instrument was acknowledged before me on this                  day of
October 2004, by Peter Partain, President of Cano Energy Corporation, a Texas
corporation, on behalf of said company.

 

[NOTARY SEAL]

 

 

 

 

 

 

Notary Public in and for the State of Texas

 

My commission expires:

 

 

 

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