Exhibit 4.1


 


REGISTRATION
RIGHTS AGREEMENT


REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of November 2, 2007,
by and among Cano Petroleum, Inc., a Delaware corporation, with headquarters
located at 801 Cherry St., Suite 3200, Fort Worth, Texas 76102 (the “Company”), and the undersigned buyers
(each, a “Buyer”, and
collectively, the “Buyers”).


 


WHEREAS:


A.            In connection with the Securities
Purchase Agreement by and among the parties hereto of even date herewith (the “Securities Purchase Agreement”), the Company has agreed,
upon the terms and subject to the conditions set forth in the Securities
Purchase Agreement, to issue and sell to each Buyer shares (the “Common Shares”) of the Company’s common
stock, par value $0.0001 per share (the “Common Stock”).


B.            In accordance with the terms of the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
“1933 Act”), and applicable state
securities laws.


 


NOW,
THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:


1.     Definitions.


Capitalized terms used
herein and not otherwise defined herein shall have the respective meanings set
forth in the Securities Purchase Agreement. 
As used in this Agreement, the following terms shall have the following
meanings:


a.     “Additional
Effectiveness Date” means the date the Additional Registration
Statement is declared effective by the SEC.


b.     “Additional
Effectiveness Deadline” means the date which is forty five (45)
calendar days after the earlier of the Additional Filing Date and the
Additional Filing Deadline or in the event that the Registration Statement is
subject to any review by the SEC pursuant to which the SEC issues comments,
seventy five (75) calendar days after the earlier of the Additional Filing Date
and the Additional Filing Deadline.


c.     “Additional
Filing Date” means the date on which the Additional Registration
Statement is filed with the SEC.


d.     “Additional
Filing Deadline” means if Cutback Shares are required to be included
in the Additional Registration Statement, the later of (i) the date sixty (60)
days after the date substantially all of the Registrable Securities registered
under the immediately preceding Registration Statement are sold and (ii) the
date six (6) months from the Initial Effective Date or the last Additional
Effective Date, as applicable.


 


1





















 


e.     “Additional
Registrable Securities” means, (i) any Cutback Shares not previously
included on a Registration Statement and (ii) any capital stock of the Company
issued or issuable with respect to the Common Shares or Cutback Shares, as
applicable, as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise.


f.      “Additional
Registration Statement” means a registration statement or
registration statements of the Company filed under the 1933 Act covering any
Additional Registrable Securities.


g.     “Additional Required Registration Amount” means any Cutback
Shares not previously included on a Registration Statement.


h.     “Business Day” means any day other than Saturday, Sunday or any
other day on which commercial banks in the City of New York are authorized or
required by law to remain closed.


i.      “Closing Date” shall have the meaning set
forth in the Securities Purchase Agreement.


j.      “Cutback
Shares” means any of the Initial Required Registration Amount
(without regard to clause (II) in the definition thereof) of Registrable
Securities not included in all Registration Statements previously declared
effective hereunder as a result of a limitation on the maximum number of shares
of Common Stock of the Company permitted to be registered by the staff of the
SEC pursuant to Rule 415.


k.     “Effective Date” means the Initial Effective Date and the
Additional Effective Date, as applicable.


l.      “Effectiveness Deadline” means the Initial
Effectiveness Deadline and the Additional Effectiveness Deadline, as
applicable.


m.    “Filing Deadline” means the Initial Filing Deadline and the
Additional Filing Deadline, as applicable.


n.     “Initial
Effective Date” means the date that the Initial Registration
Statement has been declared effective by the SEC.


o.     “Initial
Effectiveness Deadline” means the date which is (i) in the event
that the Registration Statement is not subject to any review by the SEC
pursuant to which the SEC issues comments, ninety (90) days after the Closing
Date or (ii) in the event that the Registration Statement is subject to any
review by the SEC pursuant to which the SEC issues comments, one hundred twenty
(120) days after the Closing Date.


p.     “Initial
Filing Deadline” means the date that is forty five (45) days after
the Closing Date.


 


2





















 


q.     “Initial
Registrable Securities” means (i) the Common Shares and (ii) any
capital stock of the Company issued or issuable with respect to the Common
Shares as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise.


r.      “Initial Registration
Statement” means a registration statement or registration statements
of the Company filed under the 1933 Act covering the Initial Registrable
Securities.


s.     “Initial Required Registration Amount” means (I) 100% of the number of
Common Shares issued or (II) such other amount as may be required by the
staff of the SEC pursuant to Rule 415 with any cutback applied pro rata to all
Registrable Securities.


t.      “Investor” means a Buyer or any transferee
or assignee thereof to whom a Buyer assigns its rights under this Agreement and
who agrees to become bound by the provisions of this Agreement in accordance
with Section 9 and any transferee or assignee thereof to whom a transferee or
assignee assigns its rights under this Agreement and who agrees to become bound
by the provisions of this Agreement in accordance with Section 9.


u.     “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.


v.     “register,” “registered,”
and “registration” refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415, and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.


w.    “Registrable Securities” means the Initial Registrable
Securities and the Additional Registrable Securities.


x.     “Registration Statement” means a registration statement or registration
statements of the Company filed under the 1933 Act covering the Registrable
Securities.


y.     “Required Holders” means the holders of at least a majority of
the Registrable Securities.


z.     “Required Registration Amount” means either the Initial Required
Registration Amount or the Additional Required Registration Amount, as
applicable.


aa.   “Rule 415” means Rule 415 under the 1933 Act or any successor
rule providing for offering securities on a continuous or delayed basis.


bb.  “SEC” means the United States Securities and Exchange
Commission.


 


3





















 


2.     Registration.


a.     Initial Mandatory
Registration.  The Company shall
prepare, and, as soon as practicable, but in no event later than the Initial
Filing Deadline, file with the SEC the Initial Registration Statement on Form
S-3 covering the resale of all of the Initial Registrable Securities.  In the event that Form S-3 is unavailable for
such a registration, the Company shall use Form S-1 or such other form as is
available for such a registration on another appropriate form reasonably
acceptable to the Required Holders.  The
Initial Registration Statement prepared pursuant hereto shall register for
resale at least the number of shares of Common Stock equal to the Initial
Required Registration Amount determined as of the date the Initial Registration
Statement is initially filed with the SEC. 
The Initial Registration Statement shall contain (except if otherwise
directed by the Required Holders) the “Selling Stockholders” and “Plan
of Distribution” sections in substantially the form attached hereto as Exhibit
B.  The Company shall use its best
efforts to have the Initial Registration Statement declared effective by the
SEC as soon as practicable, but in no event later than the Initial
Effectiveness Deadline.  By 9:30 a.m.
New York time on the Business Day following the Initial Effective Date, the
Company shall file with the SEC in accordance with Rule 424 under the 1933 Act
the final prospectus to be used in connection with sales pursuant to such
Initial Registration Statement.


b.     Additional Mandatory
Registrations.  The Company shall
prepare, and, as soon as practicable but in no event later than the Additional
Filing Deadline, file with the SEC an Additional Registration Statement on Form
S-3 covering the resale of all of the Additional Registrable Securities not
previously registered on an Additional Registration Statement hereunder.  To the extent the staff of the SEC does not
permit the Additional Required Registration Amount to be registered on an
Additional Registration Statement, the Company shall file Additional
Registration Statements successively trying to register on each such Additional
Registration Statement the maximum number of remaining Additional Registrable
Securities until the Additional Required Registration Amount has been
registered with the SEC.  In the event
that Form S-3 is unavailable for such a registration, the Company shall use
such other form as is available for such a registration on another appropriate
form reasonably acceptable to the Required Holders.  Each Additional Registration Statement
prepared pursuant hereto shall register for resale at least that number of
shares of Common Stock equal to the Additional Required Registration Amount
determined as of the date such Additional Registration Statement is initially
filed with the SEC.  Each Additional
Registration Statement shall contain (except if otherwise directed by the
Required Holders) the “Selling Stockholders” and “Plan of Distribution”
sections in substantially the form attached hereto as Exhibit B.  The Company shall use its best efforts to
have each Additional Registration Statement declared effective by the SEC as
soon as practicable, but in no event later than the Additional Effectiveness
Deadline.  By 9:30 a.m. New York time on the Business Day
following the Additional Effective Date, the Company shall file with the SEC in
accordance with Rule 424 under the 1933 Act the final prospectus to be used in
connection with sales pursuant to such Additional Registration Statement..


c.     Allocation of
Registrable Securities.  The initial
number of Registrable Securities included in any Registration Statement and any
increase or decrease in the number of Registrable Securities included therein
shall be allocated pro rata among the Investors based on the number of
Registrable Securities held by each Investor at the time the Registration
Statement covering such initial number of Registrable Securities or increase or
decrease thereof is declared 


 


4





















 


effective
by the SEC.  In the event that an
Investor sells or otherwise transfers any of such Investor’s Registrable
Securities, each transferee shall be allocated a pro rata portion of the then
remaining number of Registrable Securities included in such Registration
Statement for such transferor.  In no
event shall the Company include any securities other than Registrable
Securities on any Registration Statement without the prior written consent of
the Required Holders.


d.     Legal Counsel.  Subject to Section 5 hereof, the Required
Holders shall have the right to select one legal counsel to review and oversee
any registration pursuant to this Section 2 (“Legal
Counsel”), which shall be Schulte Roth & Zabel LLP or such other
counsel as thereafter designated by the Required Holders.  The Company and Legal Counsel shall
reasonably cooperate with each other in performing the Company’s obligations
under this Agreement.


e.     Ineligibility for Form
S-3.  In the event that Form S-3 is
not available for the registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable
Securities on another appropriate form reasonably acceptable to the Required
Holders and (ii) undertake to register the Registrable Securities on Form S-3
as soon as such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.


f.      Effect of Failure to
File and Obtain and Maintain Effectiveness of Registration Statement.  If (i) a Registration Statement covering all
of the Registrable Securities required to be covered thereby and required to be
filed by the Company pursuant to this Agreement is (A) not filed with the SEC
on or before the respective Filing Deadline (a “Filing
Failure”) or (B) not declared effective by the SEC on or before the
respective Effectiveness Deadline (an “Effectiveness Failure”)
or (ii) on any day after the Effective Date sales of all of the Registrable
Securities required to be included on such Registration Statement cannot be
made (other than during an Allowable Grace Period (as defined in Section 3(r))
pursuant to such Registration Statement (including, without limitation, because
of a failure to keep such Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to such Registration
Statement, to register a sufficient number of shares of Common Stock or to
maintain the listing of the Common Stock) (a “Maintenance
Failure”) then, as partial relief for the damages to any holder by
reason of any such delay in or reduction of its ability to sell the underlying
shares of Common Stock and not as a penalty (which remedy shall not be
exclusive of any other remedies available at law or in equity), the Company
shall pay to each holder of Registrable Securities relating to such Registration
Statement an amount in cash equal to one percent (1.0%) of the aggregate
Purchase Price (as such term is defined in the Securities Purchase Agreement)
of such Investor’s Registrable Securities included in such Registration
Statement on each of the following dates: 
(i) the day of a Filing Failure; (ii) the day of an Effectiveness
Failure; (iii) the initial day of a Maintenance Failure; (iv) on every
thirtieth day after the day of a Filing Failure and thereafter (pro rated for
periods totaling less than thirty days) until such Filing Failure is cured; (v)
on every thirtieth day after the day of an Effectiveness Failure and thereafter
(pro rated for periods totaling less than thirty days) until such Effectiveness
Failure is cured; and (vi) on every thirtieth day after the initial day of a 


 


5





















 


Maintenance
Failure and thereafter (pro rated for periods totaling less than thirty days)
until such Maintenance Failure is cured. 
The payments to which a holder shall be entitled pursuant to this
Section 2(f) are referred to herein as “Registration Delay Payments.”  Registration Delay Payments shall be paid on
the earlier of (I) the dates set forth above and (II) the third Business Day
after the event or failure giving rise to the Registration Delay Payments is
cured.  In the event the Company fails to
make Registration Delay Payments in a timely manner, such Registration Delay
Payments shall bear interest at the rate of one and one-half percent (1.5%) per
month (prorated for partial months) until paid in full.  Notwithstanding anything herein or in the
Securities Purchase Agreement to the contrary in no event shall the aggregate
amount of Registration Delay Payments (other than Registration Delay Payments
payable pursuant to events that are within the control of the Company, such as
solely for the purposes of an example, failure to file any registration
statement required hereby) exceed, in the aggregate, 10% of the aggregate
Purchase Price.


3.     Related Obligations.


At
such time as the Company is obligated to file a Registration Statement with the
SEC pursuant to Section 2(a), 2(b) or 2(e), the Company will use its best
efforts to effect the registration of the Registrable Securities in accordance
with the intended method of disposition thereof and, pursuant thereto, the
Company shall have the following obligations:


a.     The Company shall promptly
prepare and file with the SEC a Registration Statement with respect to the
Registrable Securities and use its best efforts to cause such Registration
Statement relating to the Registrable Securities to become effective as soon as
practicable after such filing (but in no event later than the Effectiveness
Deadline).  The Company shall keep each
Registration Statement effective pursuant to Rule 415 at all times until the
earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) (or any successor thereto) promulgated under
the 1933 Act or (ii) the date on which the Investors shall have sold all of the
Registrable Securities covered by such Registration Statement (the “Registration Period”).  The Company shall ensure that each
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein,
or necessary to make the statements therein (in the case of prospectuses, in
the light of the circumstances in which they were made) not misleading.  The term “best efforts” shall mean, among
other things, that the Company shall submit to the SEC, within three (3)
Business Days after the later of the date that (i) the Company learns that no
review of a particular Registration Statement will be made by the staff of the
SEC or that the staff has no further comments on a particular Registration
Statement, as the case may be and (ii) the approval of Legal Counsel pursuant
to Section 3(c) (which approval is immediately sought and shall not be
unreasonably withheld or delayed), a request for acceleration of effectiveness
of such Registration Statement to a time and date not later than 48 hours after
the submission of such request.


b.     The Company shall prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with such Registration Statement, which prospectus is to be filed pursuant to
Rule 424 promulgated under the 1933 Act, as may be necessary to keep such 


 


 


6





















 


Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement.  In the case of amendments and
supplements to a Registration Statement which are required to be filed pursuant
to this Agreement (including pursuant to this Section 3(b)) by reason of the
Company filing a report on Form 10-Q, Form 10-K or any analogous report under
the Securities Exchange Act of 1934, as amended (the “1934 Act”), the Company shall have
incorporated such report by reference into such Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC within
one (1) Business Day after the day on which the 1934 Act report is filed which
created the requirement for the Company to amend or supplement such
Registration Statement.


c.     The Company shall (A)
permit Legal Counsel to review and comment upon (i) a Registration Statement at
least five (5) Business Days prior to its filing with the SEC and (ii) all
amendments and supplements to all Registration Statements (except for Annual
Reports on Form 10-K or Form 10-KSB, Quarterly Reports on Form 10-Q or Form
10-QSB, Current Reports on Form 8-K, and any similar or successor reports)
within a reasonable number of days prior to their filing with the SEC, and (B)
not file any Registration Statement or amendment or supplement thereto in a
form to which Legal Counsel reasonably objects. 
The Company shall not submit a request for acceleration of the
effectiveness of a Registration Statement or any amendment or supplement
thereto without the prior approval of Legal Counsel, which consent shall not be
unreasonably withheld or delayed.  The
Company shall furnish to Legal Counsel, without charge, (i) copies of any
correspondence from the SEC or the staff of the SEC to the Company or its representatives
relating to any Registration Statement, (ii) promptly after the same is
prepared and filed with the SEC, one copy of any Registration Statement and any
amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, if requested by an Investor, and
all exhibits and (iii) upon the effectiveness of any Registration Statement,
one copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto.  The
Company shall reasonably cooperate with Legal Counsel in performing the Company’s
obligations pursuant to this Section 3.


d.     The Company shall furnish
to each Investor whose Registrable Securities are included in any Registration
Statement, without charge, (i) promptly after the same is prepared and filed
with the SEC, at least one copy of such Registration Statement and any
amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, and, if requested by an Investor,
all exhibits and each preliminary prospectus, (ii) upon the effectiveness of
any Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such
other number of copies as such Investor may reasonably request) and (iii) such
other documents, including copies of any preliminary or final prospectus, as
such Investor may reasonably request from time to time in order to facilitate
the disposition of the Registrable Securities owned by such Investor.


 


7





















 


e.     Neither the Company nor any
Subsidiary (as defined in the Securities Purchase Agreement) nor affiliate
thereof shall identify any Buyer as an underwriter in any public disclosure or
filing with the SEC or any Principal Market (as defined in the Securities
Purchase Agreement) or any Eligible Market (as defined in the Securities
Purchase Agreement) and any Buyer being deemed an underwriter by the SEC shall
not relieve the Company of any obligations it has under this Agreement or any
other Transaction Document (as defined in the Securities Purchase Agreement) provided,
however, that the foregoing shall not prohibit the Company from
including the disclosure found in the “Plan of Distribution” section attached
hereto as Exhibit B in the Registration Statement.  In addition, if any Buyer is an underwriter
or deemed an underwriter by the SEC rules and such Buyer refuses to be
identified as an underwriter or deemed underwriter in the Registration
Statement, such Buyer’s Registrable Securities shall not be included in the
Registration Statement and the Company shall not be treated as if it did not
register the Initial Registrable Securities or Additional Registrable
Securities, as applicable, due to such Buyer’s refusal and the Buyer not be
entitled to any Registration Delay Payments.


f.      The Company shall use its
best efforts to (i) register and qualify, unless an exemption from registration
and qualification applies, the resale by Investors of the Registrable
Securities covered by a Registration Statement under such other securities or “blue
sky” laws of all applicable jurisdictions in the United States, (ii) prepare
and file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all other actions reasonably necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection therewith or as a
condition thereto to (x) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(f), (y)
subject itself to general taxation in any such jurisdiction, or (z) file a
general consent to service of process in any such jurisdiction.  The Company shall promptly notify Legal
Counsel and each Investor who holds Registrable Securities of the receipt by
the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or “blue sky” laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.


g.     The Company shall notify
Legal Counsel and each Investor in writing of the happening of any event, as
promptly as practicable after becoming aware of such event, as a result of
which the prospectus included in a Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading
(provided that in no event shall such notice contain any material, nonpublic
information), and, subject to Section 3(r), promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). 
The Company shall also promptly notify Legal Counsel and each Investor
in writing (i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and when 


 


8





















 


a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and
each Investor by facsimile or e-mail on the same day of such effectiveness and
by overnight mail), (ii) of any request by the SEC for amendments or
supplements to a Registration Statement or related prospectus or related
information, and (iii) of the Company’s reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.


h.     The Company shall use its
best efforts to prevent the issuance of any stop order or other suspension of
effectiveness of a Registration Statement, or the suspension of the
qualification of any of the Registrable Securities for sale in any jurisdiction
and, if such an order or suspension is issued, to obtain the withdrawal of such
order or suspension at the earliest possible moment and to notify Legal Counsel
and each Investor who holds Registrable Securities being sold of the issuance
of such order and the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.


i.      Upon the written request
of any Investor in connection with such Investor’s due diligence requirements,
if any, the Company shall make available for inspection by (i) any Investor,
(ii) Legal Counsel and (iii) one firm of accountants or other agents retained
by the Investors (collectively, the “Inspectors”),
all pertinent financial and other records, and pertinent corporate documents
and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each
Inspector, and cause the Company’s officers, directors and employees, counsel
and the Company’s independent certified public accountants to supply all
information which may be necessary and any Inspector may reasonably request;
provided, however, that each Inspector shall agree to hold in strict confidence
and shall not make any disclosure (except to an Investor) or use of any Record
or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the 1933 Act, (b) the release of such Records is ordered pursuant to a final,
non-appealable subpoena or order from a court or government body of competent
jurisdiction, or (c) the information in such Records has been made generally
available to the public other than by disclosure in violation of this
Agreement.  Each Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.  Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investors’ ability to sell Registrable Securities in a manner
which is otherwise consistent with applicable laws and regulations.


j.      The Company shall hold in
confidence and not make any disclosure of information concerning an Investor
provided to the Company unless (i) disclosure of such information is necessary
to comply with federal or state securities laws, (ii) the disclosure of such
information is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other final, non-appealable order from a court or
governmental body of competent jurisdiction, or (iv) such information has been
made generally available to the public other than by disclosure in violation of
this Agreement or any other agreement. 
The Company agrees that it shall, upon learning that 


 


9





















 


disclosure
of such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor’s
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.


k.     The Company shall use its
reasonable best efforts either to (i) cause all of the Registrable Securities
covered by a Registration Statement to be listed on each securities exchange on
which securities of the same class or series issued by the Company are then listed,
if any, if the listing of such Registrable Securities is then permitted under
the rules of such exchange or (ii) secure the inclusion for quotation of all of
the Registrable Securities on The American Stock Exchange, or (iii) if, despite
the Company’s reasonable best efforts to satisfy the preceding clauses (i) and
(ii) the Company is unsuccessful in satisfying the preceding clauses (i) and
(ii), to secure the inclusion for quotation on The New York Stock Exchange, The
NASDAQ Global Market, The NASDAQ Global Select Market or the NASDAQ Capital
Market for such Registrable Securities and, without limiting the generality of
the foregoing, to use its best efforts to arrange for at least two market
makers to register with the Financial Industry Regulatory Authority (“FINRA”)
as such with respect to such Registrable Securities.  The Company shall pay all fees and expenses
in connection with satisfying its obligation under this Section 3(k).


l.      The Company shall
cooperate with the Investors who hold Registrable Securities being offered and,
to the extent applicable, facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legend) representing the Registrable
Securities to be offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
Investors may reasonably request and registered in such names as the Investors
may request.


m.    If requested by an Investor,
the Company (i) shall as soon as practicable but in no event later than (a)
five (5) days after the receipt of notice from such Investor, incorporate in a
prospectus supplement or (b) forty-five days after the receipt of notice from
such Investor incorporate into a post-effective amendment such information as
an Investor reasonably requests to be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being offered
or sold, the purchase price being paid therefor and any other terms of the
offering of the Registrable Securities to be sold in such offering; (ii) shall
make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) shall supplement
or make amendments to any Registration Statement if reasonably requested by an
Investor holding any Registrable Securities.


n.     The Company shall use its
best efforts to cause the Registrable Securities covered by the Registration
Statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary to consummate the disposition of such
Registrable Securities.


o.     The Company shall make
generally available to its security holders as soon as practical, including via
the EDGAR system of the SEC or via a public announcement, but not later than
ninety (90) days after the close of the period covered thereby, an earnings 


 


10





















 


statement
(in form complying with, and in the manner provided by, the provisions of Rule
158 under the 1933 Act) covering a twelve-month period beginning not later than
the first day of the Company’s fiscal quarter next following the Effective Date
of a Registration Statement.


p.     The Company shall otherwise
use its best efforts to comply with all applicable rules and regulations of the
SEC in connection with any registration hereunder.


q.     Within two (2) Business
Days after a Registration Statement which covers Registrable Securities is
ordered effective by the SEC, the Company shall deliver, and shall cause legal
counsel for the Company to deliver, to the transfer agent for such Registrable
Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) confirmation that such Registration
Statement has been declared effective by the SEC in the form attached hereto as
Exhibit A.


r.      Notwithstanding anything
to the contrary herein, at any time after the Effective Date, the Company may
delay the disclosure of material, non-public information concerning the Company
the disclosure of which at the time is not, in the good faith opinion of the
Board of Directors of the Company and its counsel, in the best interest of the
Company and, in the opinion of counsel to the Company, otherwise required (a “Grace Period”); provided, that the Company
shall promptly (i) notify the Investors in writing of the existence of material,
non-public information giving rise to a Grace Period (provided that in each
notice the Company will not disclose the content of such material, non-public
information to the Investors) and the date on which the Grace Period will
begin, and (ii) notify the Investors in writing of the date on which the Grace
Period ends; and, provided further, that no Grace Period shall exceed twelve
(12) consecutive days and during any three hundred sixty five (365) day period
such Grace Periods shall not exceed an aggregate of twenty-five (25) days and
the first day of any Grace Period must be at least five (5) trading days after
the last day of any prior Grace Period (each, an “Allowable Grace Period”). 
For purposes of determining the length of a Grace Period above, the
Grace Period shall begin on and include the date the Investors receive the
notice referred to in clause (i) and shall end on and include the later of the
date the Investors receive the notice referred to in clause (ii) and the date
referred to in such notice.  The
provisions of Section 3(g) hereof shall not be applicable during the period of
any Allowable Grace Period.  Upon
expiration of the Grace Period, the Company shall again be bound by the first
sentence of Section 3(g) with respect to the information giving rise thereto
unless such material, non-public information is no longer applicable.  Notwithstanding anything to the contrary, the
Company shall cause its transfer agent to deliver unlegended shares of Common
Stock to a transferee of an Investor in accordance with the terms of the
Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for
sale, and delivered a copy of the prospectus included as part of the applicable
Registration Statement (unless an exemption from such delivery requirement
exists), prior to the Investor’s receipt of the notice of a Grace Period and
for which the Investor has not yet settled.


4.     Obligations of the Investors.


a.     At least ten (10) Business
Days prior to the first anticipated filing date of a Registration Statement,
the Company shall notify each Investor in writing of the information the
Company requires from each such Investor if such Investor elects to have any of
such 


 


11





















 


Investor’s
Registrable Securities included in such Registration Statement.  It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it, as shall be reasonably
required to effect and maintain the effectiveness of the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.


b.     Each Investor, by such
Investor’s acceptance of the Registrable Securities, agrees to cooperate with
the Company as reasonably requested by the Company in connection with the
preparation and filing of any Registration Statement hereunder, unless such
Investor has notified the Company in writing of such Investor’s election to
exclude all of such Investor’s Registrable Securities from such Registration
Statement.


c.     Each Investor agrees that,
upon receipt of any notice from the Company of the happening of any event of
the kind described in Section 3(h) or the first sentence of 3(g), such Investor
will immediately discontinue disposition of Registrable Securities pursuant to
any Registration Statement(s) covering such Registrable Securities until with
regard to a discontinuance pursuant to Section 3(h), such Investor’s receipt of
a written notice from the Company that there is no further event under Section
3(h) in effect and with regard to a discontinuance pursuant to the first
sentence of Section 3(g), such Investor’s receipt of the copies of the
supplemented or amended prospectus contemplated by the first sentence of 3(g)
or receipt of notice that no supplement or amendment is required.  Notwithstanding anything to the contrary, the
Company shall cause its transfer agent to deliver unlegended shares of Common
Stock to a transferee of an Investor in accordance with the terms of the
Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for
sale prior to the Investor’s receipt of a notice from the Company of the
happening of any event of the kind described in Section 3(h) or the first
sentence of 3(g) and for which the Investor has not yet settled.


d.     Each Investor covenants and agrees that it will comply
with the prospectus delivery requirements of the 1933 Act as applicable to it
or an exemption therefrom in connection with sales of Registrable Securities
pursuant to the Registration Statement.


5.     Expenses of Registration.


All
reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant
to Sections 2 and 3, including, without limitation, all registration, listing
and qualifications fees, printers and accounting fees, and fees and
disbursements of counsel for the Company shall be paid by the Company.  The Company shall also reimburse the
Investors for the fees and disbursements of Legal Counsel in connection with
registration, filing or qualification pursuant to Sections 2 and 3 of this
Agreement which amount shall be limited to $15,000 for each such registration,
filing or qualification.


 


 


12
















 


6.     Indemnification.


In
the event any Registrable Securities are included in a Registration Statement
under this Agreement:


a.     To the fullest extent
permitted by law, the Company will, and hereby does, indemnify, hold harmless
and defend each Investor, the directors, officers, members, partners,
employees, agents, representatives of, and each Person, if any, who controls
any Investor within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Person”), against any losses,
claims, damages, liabilities, judgments, fines, penalties, charges, costs,
reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or
several, other than consequential, indirect or incidental damages
(collectively, “Claims”) incurred
in investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto (“Indemnified Damages”),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon:  (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
“blue sky” laws of any jurisdiction in which Registrable Securities are offered
(“Blue Sky Filing”), or the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii) any
untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading,
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement or (iv) any
violation of this Agreement (the matters in the foregoing clauses (i) through
(iv) being, collectively, “Violations”).  Subject to Section 6(c), the Company shall
reimburse the Indemnified Persons, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred
by them in connection with investigating or defending any such Claim.  Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section
6(a):  (i) shall not apply to a Claim by
an Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person for such Indemnified Person expressly for
use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto, if such prospectus was timely
made available by the Company pursuant to Section 3(d) and (ii) shall not apply
to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed.  Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer
of the Registrable Securities by the Investors pursuant to Section 9.


 


13





















 


b.     In connection with any
Registration Statement in which an Investor is participating, each such
Investor agrees to severally and not jointly indemnify, hold harmless and
defend, to the same extent and in the same manner as is set forth in Section 6(a),
the Company, each of its directors, each of its officers who signs the
Registration Statement and each Person, if any, who controls the Company within
the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Party”), against any Claim or
Indemnified Damages to which any of them may become subject, under the 1933
Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages
arise out of or are based upon any Violation, in each case to the extent, and
only to the extent, that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and, subject
to Section 6(c), such Investor will reimburse any legal or other expenses
reasonably incurred by an Indemnified Party in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld or delayed;
provided, further, however, that the Investor shall be liable under this
Section 6(b) for only that amount of a Claim or Indemnified Damages as does not
exceed the net proceeds to such Investor as a result of the sale of Registrable
Securities pursuant to such Registration Statement.  Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.


c.     Promptly after receipt by an
Indemnified Person or Indemnified Party under this Section 6 of notice of the
commencement of any action or proceeding (including any governmental action or
proceeding) involving a Claim, such Indemnified Person or Indemnified Party
shall, if a Claim in respect thereof is to be made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party
and the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel with the fees and expenses of not more than
one counsel for such Indemnified Person or Indemnified Party to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential differing interests between such Indemnified Person
or Indemnified Party and any other party represented by such counsel in such
proceeding.  In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding at least a majority  in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates.  The Indemnified Party or Indemnified Person
shall cooperate reasonably with the indemnifying party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party
and shall furnish to the indemnifying party all information reasonably
available to the Indemnified Party or Indemnified Person which relates to such
action or Claim.  The indemnifying party
shall keep the Indemnified Party or Indemnified Person fully apprised at all
times as to the status of the defense or any settlement 


 


14





















 


negotiations
with respect thereto.  No indemnifying
party shall be liable for any settlement of any action, claim or proceeding
effected without its prior written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent.  No indemnifying party shall,
without the prior written consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party or Indemnified Person of
a release from all liability in respect to such Claim or litigation, and such
settlement shall not include any admission as to fault on the part of the
Indemnified Party or the Indemnified Person. 
Following indemnification as provided for hereunder, the indemnifying
party shall be subrogated to all rights of the Indemnified Party or Indemnified
Person with respect to all third parties, firms or corporations relating to the
matter for which indemnification has been made. 
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.


d.     The indemnification
required by this Section 6 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills
are received or Indemnified Damages are incurred.


e.     The indemnity agreements
contained herein shall be in addition to 
(i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.


7.     Contribution.


To
the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under
Section 6 to the fullest extent permitted by law; provided, however, that:  (i) no Person involved in the sale of
Registrable Securities which Person is guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) in connection with such
sale shall be entitled to contribution from any Person involved in such sale of
Registrable Securities who was not guilty of fraudulent misrepresentation; and
(ii) contribution by any seller of Registrable Securities shall be limited in
amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities pursuant to such Registration Statement.


8.     Reports Under the 1934 Act.


With
a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration (“Rule 144”),
the Company agrees to:


 


15

















 


a.     make and keep public
information available, as those terms are understood and defined in Rule 144;


b.     file with the SEC in a
timely manner all reports and other documents required of the Company under the
1933 Act and the 1934 Act so long as the Company remains subject to such
requirements (it being understood that nothing herein shall limit the Company’s
obligations under Section 4(c) of the Securities Purchase Agreement) and the
filing of such reports and other documents is required for the applicable
provisions of Rule 144; and


c.     furnish to each Investor so
long as such Investor owns Registrable Securities, promptly upon request, (i) a
written statement by the Company, if true, that it has complied with the
reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.


9.     Assignment of Registration Rights.


The
rights under this Agreement shall be automatically assignable by the Investors
to any transferee of all or any portion of such Investor’s Registrable
Securities if:  (i) the Investor agrees
in writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment; (ii) the Company is, within a reasonable time after such transfer
or assignment, furnished with written notice of (a) the name and address of
such transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned; (iii) immediately
following such transfer or assignment the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act or
applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.


10.   Amendment of Registration Rights.


Provisions
of this Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Required
Holders.  Any amendment or waiver effected
in accordance with this Section 10 shall be binding upon each Investor and the
Company.  No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities.  No consideration
shall be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the parties to this Agreement.


11.   Miscellaneous.


a.     A Person is deemed to be a
holder of Registrable Securities whenever such Person owns or is deemed to own
of record such Registrable Securities. 
If the Company receives conflicting instructions, notices or elections
from two or more Persons with respect to


 


16





















 


the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the such record owner of such
Registrable Securities.


b.     Any notices, consents,
waivers or other communications required or permitted to be given under the
terms of this Agreement must be in writing and will be deemed to have been
delivered:  (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. 
The addresses and facsimile numbers for such communications shall be:


 


                If
to the Company:


 


Cano Petroleum, Inc.

801 Cherry Street


Suite 3200


Fort Worth, Texas 76102


Telephone:            (817) 698-0900


Facsimile:               (817) 334-0222  


Attention:              Morris
B. Smith and Phillip Feiner


 


With
a copy to:


 


W. Bruce Newsome


Haynes and Boone, LLP


901 Main St., Suite 3100


Dallas, TX 75202

Telephone:            (214) 651-5119


Facsimile:               (214) 200-0636  


 


If
to Legal Counsel:


 


                                                Schulte Roth
& Zabel LLP


                                                919 Third
Avenue


                                                New York, New
York  10022


                                                Telephone:  (212) 756-2000


                                                Facsimile:  (212) 593-5955


                                                Attention:  Eleazer N. Klein, Esq.


 


If to a Buyer, to its
address and facsimile number set forth on the Schedule of Buyers attached
hereto, with copies to such Buyer’s representatives as set forth on the
Schedule of Buyers, or to such other address and/or facsimile number and/or to
the attention of such other Person as the recipient party has specified by
written notice given to each other party pursuant to this Section.  Written confirmation of receipt (A) given by
the recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender’s facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of 


 


17

















 


such transmission or (C)
provided by a courier or overnight courier service shall be rebuttable evidence
of personal service, receipt by facsimile or receipt from a nationally
recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.


c.     Failure of any party to
exercise any right or remedy under this Agreement or otherwise, or delay by a
party in exercising such right or remedy, shall not operate as a waiver
thereof.


d.     All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of
the State of New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New
York.  Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting
in The City of New York, Borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. 
Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it
under this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. 
Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.  EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.


e.     If any provision of this
Agreement is prohibited by law or otherwise determined to be invalid or
unenforceable by a court of competent jurisdiction, the provision that would
otherwise be prohibited, invalid or unenforceable shall be deemed amended to
apply to the broadest extent that it would be valid and enforceable, and the
invalidity or unenforceability of such provision shall not affect the validity
of the remaining provisions of this Agreement so long as this Agreement as so
modified continues to express, without material change, the original intentions
of the parties as to the subject matter hereof and the prohibited nature,
invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise
be conferred upon the parties.  The
parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).


f.      This Agreement, the other
Transaction Documents (as defined in the Securities Purchase Agreement) and the
instruments referenced herein and therein constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and thereof.  There are no restrictions, promises,
warranties or undertakings, other than those set forth or 


 


 


18





















 


referred
to herein and therein.  This Agreement,
the other Transaction Documents and the instruments referenced herein and
therein supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.


g.     Subject to the requirements
of Section 9, this Agreement shall inure to the benefit of and be binding upon
the permitted successors and assigns of each of the parties hereto.


h.     The headings in this
Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.


i.      This Agreement may be
executed in identical counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same agreement.  This Agreement, once executed by a party, may
be delivered to the other party hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.


j.      Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as any other party may reasonably request in order
to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.


k.     All consents and other
determinations required to be made by the Investors pursuant to this Agreement
shall be made, unless otherwise specified in this Agreement, by the Required
Holders.


l.      The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent and no rules of strict construction will be applied against
any party.


m.    This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.


n.     Notwithstanding anything to
the contrary contained herein, no Buyer or holder of Registrable Securities
shall be entitled to consequential, indirect or incidental damages
hereunder.  However, the foregoing shall
not in any way limit a Buyer or holder of Registrable Securities from being
reimbursed for its costs, fees or expenses, including, without limitation,
reasonable attorneys’ fees and disbursements in connection with any of its
rights and remedies hereunder.


o.     The obligations of each
Investor hereunder are several and not joint with the obligations of any other
Investor, and no provision of this Agreement is intended to confer any
obligations on any Investor vis-à-vis any other Investor.  Nothing contained herein, and no action taken
by any Investor pursuant hereto, shall be deemed to constitute the Investors as
a partnership, an association, a joint venture or any other kind of entity, or
create a 


 


19





















 


presumption
that the Investors are in any way acting in concert or as a group with respect
to such obligations or the transactions contemplated herein.


* * * * * *


 


 


 


20
















 


IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Registration Rights
Agreement to be duly executed as of the date first written above.


	
  COMPANY:

  	
   

  
	
   

  	
   

  
	
  CANO PETROLEUM, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
  Name:

  	
  S. Jeffrey Johnson

  	
   

  
	
   

  	
  Title:

  	
  Chairman and CEO

  	
   

  
	
   

  	
   

  	
   

  	
   

  
					



 


 


21

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


 


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  CALM WATERS PARTNERSHIP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Richard S. Strong

  	
   

  
	
   

  	
  Name:

  	
  Richard S. Strong

  	
   

  
	
   

  	
  Title:

  	
  Managing Partner

  	
   

  
						



 


22

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


 


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  George
  WeisS Associates Inc. 

  Profit
  Sharing Plan

   

  IOU LIMITED PARTNERSHIP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Steven C. Kleinman

  	
   

  
	
   

  	
  Name:

  	
  Steven C. Kleinman

  	
   

  
	
   

  	
  Title:

  	
  Authorized Signatory

  	
   

  
							



 


23

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HARRY-ANNA
  INVESTMENT FUND, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	 

	
  By:

  	
  /s/
  Richard S. Spencer

  	
   

  	 

	
   

  	
  Name:

  	
  Richard
  S. Spencer

  	
   

  	 

	
   

  	
  Title:

  	
  Managing
  Member of

  	
   

  	 

	
   

  	
   

  	
  Westcliff
  Capital Management, LLC,

  	
   

  	 

	
   

  	
   

  	
  the
  Investment Advisor

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

										



 


24

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  COMPASS
  SAV, LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard
  S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing
  Member of

  	
   

  
	
   

  	
   

  	
  Westcliff
  Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the
  Investment Advisor

  	
   

  
							



 


25

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  US DOLLAR CLASS CELL OF

  	
   

  
	
  COMPASS OFFSHORE SAV PCC, LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  By:

  	
   

  	
  /s/ Richard S. Spencer

  	
   

  	 

	
   

  	
   

  	
  Name:

  	
  Richard S. Spencer

  	
   

  	 

	
   

  	
   

  	
  Title:

  	
  Managing Member of

  	
   

  	 

	
   

  	
   

  	
   

  	
  Westcliff Capital Management, LLC,

  	
   

  	 

	
   

  	
   

  	
   

  	
  the Investment Advisor

  	
   

  	 

											



 


26

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  QUEENSCARE

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard
  S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing
  Member of

  	
   

  
	
   

  	
   

  	
  Westcliff
  Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the
  Investment Advisor

  	
   

  
									



 


27

















IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Registration Rights
Agreement to be duly executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ASHDON
  SELECT MANAGER TRUST —

  	
   

  
	
  ASHDON
  INVESTMENT, LLC MASTER TRUST

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard
  S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing
  Member of

  	
   

  
	
   

  	
   

  	
  Westcliff
  Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the
  Investment Advisor

  	
   

  
							



 


28

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  DAIMLER
  CHRYSLER CORPORATION

  	
   

  
	
  MASTER
  RETIREMENT TRUST

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard
  S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing
  Member of

  	
   

  
	
   

  	
   

  	
  Westcliff
  Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the
  Investment Advisor

  	
   

  
							



 


29

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  WESTCLIFF
  FUND, LP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard
  S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing
  Member of

  	
   

  
	
   

  	
   

  	
  Westcliff
  Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the
  General Partner

  	
   

  
								



 


30
















 


IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  UBS
  O’CONNOR LLC F/B/O:

  	
   

  
	
  O’CONNOR
  PIPES CORPORATE

  	
   

  
	
  STRATEGIES
  MASTER LIMITED

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Jeffrey Putman

  	
   

  
	
   

  	
  Name:

  	
  Jeffrey
  Putman

  	
   

  
	
   

  	
  Title:

  	
  Portfolio
  Manager

  	
   

  
									



 


31

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TRAPEZE
  CAPITAL CORP., on behalf of 

  managed
  accounts

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Adam Abramson

  	
   

  
	
   

  	
  Name:

  	
  Adam
  Abramson

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President

  	
   

  
								



 


32

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TRAPEZE
  ASSET MANAGEMENT INC., on behalf of managed accounts

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Adam Abramson

  	
   

  
	
   

  	
  Name:

  	
  Adam
  Abramson

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President

  	
   

  
									



 


33

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HUDSON
  BAY FUND LP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Yoav Roth

  	
   

  
	
   

  	
  Name:

  	
  Yoav
  Roth

  	
   

  
	
   

  	
  Title:

  	
  Principal
  and Portfolio Manager

  	
   

  
									



 


34

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HUDSON
  BAY OVERSEES FUND LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Yoav Roth

  	
   

  
	
   

  	
  Name:

  	
  Yoav
  Roth

  	
   

  
	
   

  	
  Title:

  	
  Principal
  and Portfolio Manager

  	
   

  
									



 


35

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  CRESTVIEW
  CAPITAL MASTER, LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  Crestview Capital Partners, LLC,

  	
   

  
	
   

  	
  its
  sole manager

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Stewart Flink

  	
   

  
	
   

  	
  Name:

  	
  Stewart
  Flink

  	
   

  
	
   

  	
  Title:

  	
  Manager

  	
   

  
	
   

  	
   

  	
   

  	
   

  
									



 


36

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARGONAUT
  VENTURES I, LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Jason Martin

  	
   

  
	
   

  	
  Name:

  	
  Jason
  Martin

  	
   

  
	
   

  	
  Title:

  	
  Authorized
  Agent

  	
   

  
									



 


37

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  CARLYLE
  MULTI-STRATEGY

  MASTER
  FUND

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Ralph Reynolds

  	
   

  
	
   

  	
  Name:

  	
  Ralph
  Reynolds

  	
   

  
	
   

  	
  Title:

  	
  Chief
  Investment Officer

  	
   

  
								



 


 


38
















 


IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  INDUSTRIAL
  HARVEST PARTNERS MASTER FUND, LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Todd McElroy

  	
   

  
	
   

  	
  Name:

  	
  Todd
  McElroy

  	
   

  
	
   

  	
  Title:

  	
  CFO,
  Investment Manager

  	
   

  
								



 


 


39

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  
	
  ING
  GLOBAL RESOURCES PORTFOLIO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Anthony Socci

  	
   

  
	
   

  	
  Name:

  	
  Anthony
  Socci

  	
   

  
	
   

  	
  Title:

  	
  VP
  Senior Research Analyst

  on behalf of ING Investment 

  Management
  Co.

  	
   

  
							



 


40

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  
	
  ING
  GLOBAL NATURAL RESOURCES FUND

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Anthony Socci

  	
   

  
	
   

  	
  Name:

  	
  Anthony
  Socci

  	
   

  
	
   

  	
  Title:

  	
  VP
  Senior Research Analyst

  on behalf of ING Investment 

  Management
  Co.

  	
   

  
						



 


41

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  
	
  ING
  RISK MANAGED NATURAL RESOURCES FUND

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Anthony Socci

  	
   

  
	
   

  	
  Name:

  	
  Anthony
  Socci

  	
   

  
	
   

  	
  Title:

  	
  VP
  Senior Research Analyst

  on behalf of ING Investment 

  Management
  Co.

  	
   

  
							



 


42

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  
	
  GLOBAL
  NATURAL RESOURCES TRUST FUND

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Anthony Socci

  	
   

  
	
   

  	
  Name:

  	
  Anthony
  Socci

  	
   

  
	
   

  	
  Title:

  	
  VP
  Senior Research Analyst

  on behalf of ING Investment 

  Management
  Co.

  	
   

  
							



 


43

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


 


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GLG
  NORTH AMERICAN OPPORTUNITY FUND

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  GLG
  Partners L.P., as investment manager

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  /s/
  Tim Kuschill

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Tim
  Kuschill

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Legal
  Counsel for GLG Partners L.P.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  /s/
  Victoria Parry

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Victoria
  Parry

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Senior
  Legal Counsel for GLG 

  Partners
  L.P.

  	
   

  
																		



 


 


44

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HARBOUR
  HOLDING LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Name:

  	
  Pamela
  A. Cavanaugh

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
								



 


45

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SKYLANDS
  SPECIAL INVESTMENT LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Name:

  	
  Pamela
  A. Cavanaugh

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President — Skylands Capital, LLC, Managing 

  Member
  of Skylands Special Investment LLC

  	
   

  
							



 


46

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SKYLANDS
  QUEST LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Name:

  	
  Pamela
  A. Cavanaugh

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President — Skylands Capital, LLC, Managing 

  Member
  of Skylands Quest LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
									



 


47

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SKYLANDS
  SPECIAL INVESTMENT II LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Name:

  	
  Pamela
  A. Cavanaugh

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President — Skylands Capital, LLC, Managing 

  Member
  of Skylands Special Investment II LLC

  	
   

  
							



 


 


48

















IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.


	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ENABLE
  GROWTH PARTNERSHIP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Brendan O’Neil

  	
   

  
	
   

  	
  Name:

  	
  Brendan
  O’Neil

  	
   

  
	
   

  	
  Title:

  	
  Principal
  and Portfolio Manager

  	
   

  
								



 


 


49
















 


SCHEDULE OF BUYERS


 


 


	
  Buyer

  	
   

  	
  Address
  and

  Facsimile Number

  
	
  Calm Waters Partnership

  	
   

  	
  115 S. 84th
  Street, Suite 200

  Milwaukee, WI 53214

  
	
  George Weiss Associates
  Inc. Profit Sharing Plan

  	
   

  	
  One State Street, 20th
  Floor

  Hartford, CT 06103

  
	
  IOU Limited Partnership

  	
   

  	
  One State Street, 20th
  Floor

  Hartford, CT 06103

  
	
  Harry-Anna Investment Fund

  	
   

  	
  200 7th Avenue,
  Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  
	
  Compass SAV, LLC

  	
   

  	
  200 7th Avenue,
  Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  
	
  US Dollar Class Cell of
  Compass Offshore SAV PCC, Ltd.

  	
   

  	
  200 7th Avenue,
  Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  
	
  QueensCare

  	
   

  	
  200 7th Avenue,
  Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  
	
  Westcliff Fund, LP

  	
   

  	
  200 7th Avenue,
  Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  
	
  Ashdon Select Manager
  Trust — Ashdon Investment Management, LLC Master Trust

  	
   

  	
  200 7th Avenue,
  Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  
	
  Daimler Chrysler
  Corporation Master Retirement Trust

  	
   

  	
  200 7th Avenue,
  Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  
	
  UBS O’Connor LLC F/B/O:
  O’Connor PIPES Corporate Strategies Master Limited



  	
   

  	
  One North Wacker Dr.

  32nd Floor

  c/o UBS O’Connor

  Chicago, IL 60606

  Attn: Robert Murray

  



 


 


50

















 


	
  Buyer

  	
   

  	
  Address
  and

  Facsimile Number

  
	
  Trapeze Capital Corp., on
  behalf of managed accounts Investor Company

  	
   

  	
  77 Bloor Street West

  2nd Floor

  Toronto, ON

  CANADA M5S1M2

  
	
  Trapeze Asset Management,
  Inc., on behalf of managed accounts Investor Company

  	
   

  	
  77 Bloor Street West

  2nd Floor

  Toronto, ON

  CANADA M5S1M2

  
	
  on behalf of managed
  accounts BMO Nesbitt Burns ITF Millenium Partners, LLP

  	
   

  	
  1 First Canadian Place

  35th Floor

  Toronto, ON

  CANADA M5X1H3

  
	
  on behalf of managed
  accounts Roytor & Co.

  	
   

  	
  200 Bay Street

  SL Level

  Toronto, ON

  CANADA M5J2J5

  
	
  Hudson Bay Fund LP

  	
   

  	
  120 Broadway

  40th Floor

  New York, NY 10271

  
	
  Hudson Bay Oversees Fund
  LTD.

  	
   

  	
  120 Broadway

  40th Floor

  New York, NY 10271

  
	
  Crestview Capital Funds

  	
   

  	
  95 Revere Drive, Suite A

  Northbrook, IL 60062

  
	
  Argonaut Ventures I, LLC

  	
   

  	
  6733 S. Yale

  Tulsa, OK 74136

  
	
  Carlyle Multi-Strategy
  Master Fund

  	
   

  	
  1177 Avenue of the
  Americas, 16th Floor

  c/o Carlyle-Blue Wave Partners Management, LP

  New York, NY 10036

  
	
  Industrial Harvest
  Partners Master Fund, Ltd.

  	
   

  	
  220 East 42nd
  Street

  29th Floor

  New York, NY 10017

  
	
  ING Global Resources
  Portfolio

  	
   

  	
  c/o ING Investment
  Management Company

  230 Park Avenue

  New York, NY 10169

  



 


51

















	
  Buyer

  	
   

  	
  Address
  and

  Facsimile Number

  
	
  ING Global Natural
  Resources Fund

  	
   

  	
  c/o ING Investment
  Management Company

  230 Park Avenue

  New York, NY 10169

  
	
  ING Risk Managed Natural
  Resources Fund

  	
   

  	
  c/o ING Investment
  Management Company

  230 Park Avenue

  New York, NY 10169

  
	
  Global Natural Resources
  Trust Fund

  	
   

  	
  c/o ING Investment
  Management Company

  230 Park Avenue

  New York, NY 10169

  
	
  GLG North American
  Opportunity Fund

  	
   

  	
  Walker House

  87 Mary Street

  George Town

  Grand Cayman

  Cayman Islands KY1-9002

  

  c/o GLG Partners LP

  Attn: Legal Department

  One Curzon Street

  London, England W1J5HB

  
	
  Harbour Holdings Ltd.

  	
   

  	
  c/o Skylands Capital, LLC

  1200 N. Mayfair Road

  Suite 250

  Milwaukee, WI 53213

  
	
  Skylands Special
  Investment LLC.

  	
   

  	
  c/o Skylands Capital, LLC

  1200 N. Mayfair Road

  Suite 250

  Milwaukee, WI 53213

  
	
  Skylands Quest LLC.

  	
   

  	
  c/o Skylands Capital, LLC

  1200 N. Mayfair Road

  Suite 250

  Milwaukee, WI 53213

  
	
  Skylands Special
  Investment II LLC.

  	
   

  	
  c/o Skylands Capital, LLC

  1200 N. Mayfair Road

  Suite 250

  Milwaukee, WI 53213

  
	
  Enable Growth Partners LP

  	
   

  	
  One Ferry Building

  Suite 255

  San Francisco, CA 94111

  



 


52
















 


EXHIBIT A


 


NOTICE OF EFFECTIVENESS


OF REGISTRATION STATEMENT


 


 


              
    , 2007


 


 


Via FedEx


 


Interwest Transfer Company


1981 East Murray Holladay Rd., Suite 100


Salt Lake City, Utah 84117


ATTN:      Lorraine Smith


 


 


Re:     Cano Petroleum, Inc.


 


 


Ladies and Gentlemen:


 


We are counsel to Cano
Petroleum, Inc., a Delaware corporation (the “Company”), and have represented the Company in connection with
that certain Securities Purchase Agreement, dated as of October     ,
2007 (the “Securities  Purchase Agreement”), entered into by and
among the Company and the buyers named therein (collectively, the “Holders”) pursuant to which the Company
issued to the Holders its shares of the Company’s Common Stock, par value
$0.0001 per share (the “Common Stock”).  Pursuant to the Securities Purchase
Agreement, the Company also has entered into a Registration Rights Agreement
with the Holders (the “Registration Rights
Agreement”) pursuant to which the Company agreed, among other
things, to register the resale of the Registrable Securities (as defined in the
Registration Rights Agreement) under the Securities Act of 1933, as amended
(the “1933 Act”).  In connection with the Company’s obligations
under the Registration Rights Agreement, on               
    , 2007, the Company filed a Registration Statement on
Form S-3 (File No. 333-            )
(the “Registration Statement”)
with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities which names each
of the Holders as a selling stockholder thereunder.


 


In connection with the
foregoing, we advise you that a member of the SEC’s staff has advised us by
telephone that the SEC has entered an order declaring the Registration
Statement effective under the 1933 Act at         
P.M. EST on                   
     , 2007 and we have no knowledge, after
telephonic inquiry of a member of the SEC’s staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.


 


 


A-1

















 


 


Subject to the specific
prohibitions contained in the Registration Rights Agreement regarding the
inability to use the Registration Statement under specific circumstances (the “Registration Statement Limitations”) and in reliance upon
the Holder’s representations and covenants in Section 2(g) of the Securities
Purchase Agreement, this letter
shall serve as our standing instruction to you that the shares of Common Stock
are freely transferable by the Holders pursuant to the Registration Statement
provided that the prospectus delivery requirements, if any, are complied with.  Subject to the Registration Statement
Limitations, you need not require further letters from us to effect any future
legend-free issuance or reissuance of shares of Common Stock to the Holders as
contemplated by the Company’s Transfer Agent Instructions dated October     ,
2007.  This letter shall serve as our
standing instruction with regard to this matter.


 


Very truly yours,


 


	
  HAYNES
  AND BOONE, LLP

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  W. Bruce Newsome

  	
   

  
				



 


 


cc:                [Buyers]


 


A-2
















 


EXHIBIT B


 


SELLING
STOCKHOLDERS


The
shares of Common Stock being offered by the Selling Stockholders are those
previously issued to the Selling Stockholders. 
For additional information regarding the issuance of those shares of
Common Stock, see “Private Placement of Common Shares” above.  We are registering the shares of Common Stock
in order to permit the selling stockholders to offer the shares for resale from
time to time.  Except for [        ][Discuss
necessary relationships] and the ownership of the shares of Common Stock issued
pursuant to the Securities Purchase Agreement, the selling stockholders have
not had any material relationship with us within the past three years.


The
table below lists the Selling Stockholders and other information regarding the
beneficial ownership of the shares of Common Stock by each of the Selling
Stockholders.  The second column lists
the number of shares of Common Stock beneficially owned by each Selling
Stockholder, based on its ownership of the shares of Common Stock and any
securities exercisable into or convertible into Common Stock, as of                      ,
200  .


The
third column lists the shares of Common Stock being offered by this prospectus
by the Selling Stockholders.


In
accordance with the terms of a registration rights agreement with the selling
stockholders, this prospectus generally covers the resale of 100% of the number
of shares of Common Stock issued as of the trading day immediately preceding
the date the registration statement is initially filed with the SEC.  The fourth column assumes
the sale of all of the shares offered by the Selling Stockholders pursuant to
this prospectus.


The
Selling Stockholders may sell all, some or none of their shares in this
offering.  See “Plan of Distribution.”


 


 


B - 1

















	
  

  

  Name of Selling Stockholder

  	
   

  	
  Number
  of Shares Beneficially Owned Prior to Offering

  	
   

  	
  Maximum
  Number of 

  Shares to be Sold Pursuant
  

  to this
  Prospectus

  	
   

  	
  Number of Shares
  Beneficially Owned After Offering

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Buyer] (1)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Other
  Buyers]

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  







(1)


 


B - 2
















 


PLAN OF
DISTRIBUTION


We
are registering the shares of Common Stock previously issued to permit the
resale of these shares of Common Stock by the holders of the Common Stock from
time to time after the date of this prospectus. 
We will not receive any of the proceeds from the sale by the selling
stockholders of the shares of Common Stock. 
We will bear all fees and expenses incident to our obligation to
register the shares of Common Stock.


The
selling stockholders may sell all or a portion of the shares of Common Stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents.  If the shares of Common Stock are sold
through underwriters or broker-dealers, the selling stockholders will be
responsible for underwriting discounts or commissions or agent’s
commissions.  The shares of Common Stock
may be sold in one or more transactions at fixed prices, at prevailing market
prices at the time of the sale, at varying prices determined at the time of
sale, or at negotiated prices.  These
sales may be effected in transactions, which may involve crosses or block
transactions,


•                  on any national securities
exchange or quotation service on which the securities may be listed or quoted
at the time of sale;


•                  in the over-the-counter
market;


•                  in transactions otherwise
than on these exchanges or systems or in the over-the-counter market;


•                  through the writing of
options, whether such options are listed on an options exchange or otherwise;


•                  ordinary brokerage
transactions and transactions in which the broker-dealer solicits purchasers;


•                  block trades in which the
broker-dealer will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction;


•                  purchases by a broker-dealer
as principal and resale by the broker-dealer for its account;


•                  an exchange distribution in
accordance with the rules of the applicable exchange;


•                  privately negotiated
transactions;


•                  short sales;


•                  sales pursuant to Rule 144;


•                  broker-dealers may agree
with the selling stockholders to sell a specified number of such shares at a
stipulated price per share;


 


1

















 


•                  a combination of any such
methods of sale; and


•                  any other method permitted
pursuant to applicable law.


If
the selling stockholders effect such transactions by selling shares of Common
Stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of the shares of Common Stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved).  In connection with sales of the shares of
Common Stock or otherwise, the selling stockholders may enter into hedging transactions
with broker-dealers, which may in turn engage in short sales of the shares of
Common Stock in the course of hedging in positions they assume.  The selling stockholders may also sell shares
of Common Stock short and deliver shares of Common Stock covered by this
prospectus to close out short positions and to return borrowed shares in
connection with such short sales.  The
selling stockholders may also loan or pledge shares of Common Stock to
broker-dealers that in turn may sell such shares.


The
selling stockholders may pledge or grant a security interest in some or all of
the shares of Common Stock owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the shares of Common Stock from time to time pursuant to this
prospectus or any amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933, as amended, amending, if
necessary, the list of selling stockholders to include, pursuant to prospectus
amendment or prospectus supplement, the pledgee, transferee or other successors
in interest as selling stockholders under this prospectus.  The selling stockholders also may transfer
and donate the shares of Common Stock in other circumstances in which case the
transferees, donees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus.


The
selling stockholders and any broker-dealer participating in the distribution of
the shares of Common Stock may be deemed to be “underwriters” within the
meaning of the Securities Act, and any commission paid, or any discounts or
concessions allowed to, any such broker-dealer may be deemed to be underwriting
commissions or discounts under the Securities Act.  At the time a particular offering of the
shares of Common Stock is made, a prospectus supplement, if required, will be
distributed which will set forth the aggregate amount of shares of Common Stock
being offered and the terms of the offering, including the name or names of any
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to broker-dealers.


Under
the securities laws of some states, the shares of Common Stock may be sold in
such states only through registered or licensed brokers or dealers.  In addition, in some states the shares of
Common Stock may not be sold unless such shares have been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is complied with.


 


2

















 


There
can be no assurance that any selling stockholder will sell any or all of the
shares of Common Stock registered pursuant to the registration statement, of
which this prospectus forms a part.


The
selling stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of Common Stock by the selling stockholders
and any other participating person. 
Regulation M may also restrict the ability of any person engaged in the
distribution of the shares of Common Stock to engage in market-making
activities with respect to the shares of Common Stock.  All of the foregoing may affect the
marketability of the shares of Common Stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of
Common Stock.


We
will pay all expenses of the registration of the shares of Common Stock
pursuant to the registration rights agreement, estimated to be
$[     ] in total, including, without limitation,
Securities and Exchange Commission filing fees and expenses of compliance with
state securities or “blue sky” laws; provided, however, that a selling
stockholder will pay all underwriting discounts and selling commissions, if
any.  We will indemnify the selling
stockholders against liabilities, including some liabilities under the
Securities Act, in accordance with the registration rights agreements, or the
selling stockholders will be entitled to contribution.  We may be indemnified by the selling
stockholders against civil liabilities, including liabilities under the
Securities Act, that may arise from any written information furnished to us by
the selling stockholder specifically for use in this prospectus, in accordance
with the related registration rights agreement, or we may be entitled to
contribution.


Once
sold under the registration statement, of which this prospectus forms a part,
the shares of Common Stock will be freely tradable in the hands of persons
other than our affiliates.


 


 


 


 


3