**EXHIBIT10.11**

 

**CONSENT AGREEMENT**

 

This CONSENT AGREEMENT (“Agreement”) made effective as of February 21,2008 (“Effective Date”) is among Cano Petroleum, Inc., a Delawarecorporation (“Borrower”), the Guarantors (as defined below), the Lenders(as defined below), and Union Bank of California, N.A., as administrative agentfor such Lenders (in such capacity, the “Administrative Agent”) and asissuing lender (in such capacity, the “Issuing Lender”).

 

**RECITALS**

 

A.                                   The Borrower isparty to that certain Credit Agreement dated as of November 29, 2005, asheretofore amended (as so amended, the “Credit Agreement”; the definedterms of which are used herein unless otherwise defined herein) among theBorrower, the lenders party thereto from time to time (the “Lenders”),the Administrative Agent, and the Issuing Lender.

 

B.                                     The Borrower proposes to enter intoHydrocarbon Hedge Agreements with Union Bank of California, N.A. as the swapcounterparty which would cover notional volumes in excess of 80% of theanticipated production volumes attributable to Proven Reserves of the Borrowerand its Subsidiaries during the period such hedge arrangements would be ineffect (“Excess Hedges”).

 

C.                                     Section 6.14 of the Credit Agreementrequires that the Borrower not enter into any hedging arrangements which wouldcover notional volumes in excess of 80% of the anticipated production volumesattributable to the Borrower’s and its Subsidiaries’ Proven Reserves.

 

D.                                    Subject to the terms and conditions set forthherein, the Lenders wish to consent to the Borrower and its Subsidiariesentering into such Excess Hedges.

 

THEREFORE, the Borrower, theGuarantors, the Lenders, and the Administrative Agent hereby agree as follows:

 

**Section 1.****                                         ****DefinedTerms****.**  As used inthis Agreement, each of the terms defined in the opening paragraph and theRecitals above shall have the meanings assigned to such terms therein.  Each term defined in the Credit Agreement andused herein without definition shall have the meaning assigned to such term inthe Credit Agreement, unless expressly provided to the contrary.

 

**Section 2.****                                         ****OtherDefinitional Provisions****.**Article, Section, Schedule,and Exhibit references are to Articles and Sections of and Schedules andExhibits to this Agreement, unless otherwise specified.  All references to instruments, documents,contracts, and agreements are references to such instruments, documents,contracts, and agreements as the same may be amended, supplemented, andotherwise modified from time to time, unless otherwise specified.  The words “hereof”, “herein”, and “hereunder”and words of similar import when used in this Agreement shall refer to thisAgreement as a whole and not to any particular provision of thisAgreement.  The term “including” means “including,without limitation,”.  Paragraph headingshave been inserted in this Agreement as a matter of convenience for referenceonly and it is 

 

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agreed that such paragraph headings are not a part of this Agreementand shall not be used in the interpretation of any provision of this Agreement.

 

**Section 3.****                                         ****Consent**.  The Lenders hereby consent to the Borrowerand its Subsidiares entering into the Excess Hedges; provided that, such ExcessHedges shall not cover notional volumes in excess of 85% of the anticipatedproduction volumes attributable to the Borrower’s and its Subsidiaries’ ProvenReserves.  The consent by the Lendersdescribed in this Section 3 is limited to the extent described above andshall not be construed to be a consent to or a permanent waiver of the Section 6.14of the Credit Agreement or any other terms, provisions, covenants, warrantiesor agreements contained in any Loan Document.  Other than as consented to hereby, theBorrower hereby agrees and acknowledges that the Lenders require and willrequire strict performance by the Borrower of all of its obligations,agreements and covenants contained in the Credit Agreement and the other LoanDocuments, and no inaction or action regarding any Default or Event of Defaultis intended to be or shall be a waiver thereof.

 

**Section 4.****                                         ****Borrower Representations and Warranties****.**  The Borrower represents and warrants that: (a) aftergiving effect to this Agreement, the representations and warranties containedin the Credit Agreement and the representations and warranties contained in theother Loan Documents are true and correct in all material respects on and as ofthe Effective Date as if made on as and as of such date except to the extentthat any such representation or warranty expressly relates solely to an earlierdate, in which case such representation or warranty is true and correct in allmaterial respects as of such earlier date; (b) after giving effect to thisAgreement, no Default has occurred and is continuing; (c) the execution, delivery and performance ofthis Agreement are within the corporate power and authority of the Borrower andhave been duly authorized by appropriate corporate and governing action andproceedings; (d) this Agreement constitutes the legal, valid, and bindingobligation of the Borrower enforceable in accordance with its terms, except aslimited by applicable bankruptcy, insolvency, reorganization, moratorium, orsimilar laws affecting the rights of creditors generally and general principlesof equity; (e) there are no governmental or other third party consents,licenses and approvals required in connection with the execution, delivery,performance, validity and enforceability of this Agreement; and (f) theLiens under the Security Instruments are valid and subsisting and secureBorrower’s obligations under the Loan Documents.

 

**Section 5.****                                         ****Guarantors Representations and Warranties**.  Each Guarantor represents and warrants that: (a) aftergiving effect to this Agreement, the representations and warranties containedin the Guaranty and the representations and warranties contained in the otherLoan Documents are true and correct in all material respects on and as of theEffective Date as if made on as and as of such date except to the extent thatany such representation or warranty expressly relates solely to an earlierdate, in which case such representation or warranty is true and correct in allmaterial respects as of such earlier date; (b) after giving effect to thisAgreement, no Default has occurred and is continuing; (c) the execution,delivery and performance of this Agreement are within the corporate, limitedliability company, or partnership power and authority of such Guarantor andhave been duly authorized by appropriate corporate, limited liability company,or partnership action and proceedings; (d) this Agreement constitutes thelegal, valid, and binding obligation of such Guarantor enforceable inaccordance with its terms, except as limited by applicable bankruptcy,insolvency, reorganization, moratorium, or similar laws affecting the rights ofcreditors generally and general principles of equity; (e) there 

 

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are no governmental or other third party consents, licenses andapprovals required in connection with the execution, delivery, performance, validityand enforceability of this Agreement; (f) it has no defenses to theenforcement of the Guaranty; and (g) the Liens under the SecurityInstruments are valid and subsisting and secure such Guarantor’s and theBorrower’s obligations under the Loan Documents.

 

**Section 6.****                                         ****Conditions to Effectiveness****.**  This Agreement and theamendments to the Credit Agreement provided herein shall become effective onthe Effective Date and enforceable against the parties hereto upon theoccurrence of the following conditions precedent:

 

(a)                                  The Administrative Agent shall havereceived multiple original counterparts, as requested by the AdministrativeAgent, of this Agreement duly and validly executed and delivered by dulyauthorized officers of the Borrower, the Guarantors, the Administrative Agent,and the Lenders.

 

(b)                                 No Defaultshall have occurred and be continuing as of the Effective Date.

 

(c)                                  Therepresentations and warranties in this Agreement shall be true and correct inall material respects.

 

(d)                                 The Borrower shall have paid allfees and expenses of the Administrative Agent’s outside legal counsel and otherconsultants pursuant to all invoices presented for payment on or prior to theEffective Date.

 

**Section 7.****                                         ****Acknowledgments and Agreements****.**

 

(a)                                  The Borrower acknowledges that on thedate hereof all Obligations are payable without defense, offset, counterclaimor recoupment.

 

(b)                                 TheAdministrative Agent and the Lenders hereby expressly reserve all of theirrights, remedies, and claims under the Loan Documents.  Nothing in this Agreement shall constitute awaiver or relinquishment of (i) any Default or Event of Default under anyof the Loan Documents, (ii) any of the agreements, terms or conditionscontained in any of the Loan Documents, (iii) any rights or remedies ofthe Administrative Agent or any Lender with respect to the Loan Documents, or (iv) therights of the Administrative Agent or any Lender to collect the full amountsowing to them under the Loan Documents.

 

(c)                                  Each of theBorrower, the Guarantors, Administrative Agent, and Lenders does hereby adopt,ratify, and confirm the Credit Agreement, as amended hereby, and acknowledgesand agrees that the Credit Agreement, as amended hereby, is and remains in fullforce and effect, and the Borrower and the Guarantors acknowledge and agreethat their respective liabilities and obligations under the Credit Agreement,as amended hereby, and the Guaranty, are not impaired in any respect by thisAgreement.

 

(d)                                 From and afterthe Effective Date, all references to the Credit Agreement and the LoanDocuments shall mean such Credit Agreement and such Loan Documents as amendedby this Agreement.

 

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(e)                                  This Agreementis a Loan Document for the purposes of the provisions of the other LoanDocuments.  Without limiting theforegoing, any breach of representations, warranties, and covenants under thisAgreement shall be a Default or Event of Default, as applicable, under theCredit Agreement.

 

**Section 8.****                                         ****Reaffirmation of the Guaranty**.  Each Guarantor hereby ratifies, confirms,acknowledges and agrees that its obligations under the Guaranty are in fullforce and effect and that such Guarantor continues to unconditionally andirrevocably guarantee the full and punctual payment, when due, whether atstated maturity or earlier by acceleration or otherwise, all of the GuaranteedObligations (as defined in the Guaranty), as such Guaranteed Obligations mayhave been amended by this Agreement, and its execution and delivery of thisAgreement does not indicate or establish an approval or consent requirement bysuch Guarantor under the Guaranty in connection with the execution and deliveryof amendments, consents or waivers to the Credit Agreement, the Notes or any ofthe other Loan Documents.

 

**Section 9.****                                         ****Counterparts****.**  This Agreement may be signed in any number ofcounterparts, each of which shall be an original and all of which, takentogether, constitute a single instrument. This Agreement may be executed by facsimile signature and all suchsignatures shall be effective as originals.

 

**Section 10.****                                  ****Successorsand Assigns****.**  This Agreement shall be binding upon andinure to the benefit of the parties hereto and their respective successors andassigns permitted pursuant to the Credit Agreement.

 

**Section 11.****                                  ****Invalidity****.**  In the event that any one or more of theprovisions contained in this Agreement shall for any reason be held invalid,illegal or unenforceable in any respect, such invalidity, illegality orunenforceability shall not affect any other provision of this Agreement.

 

**Section 12.****                                  ****GoverningLaw****.**  ThisAgreement shall be deemed to be a contract made under and shall be governed byand construed in accordance with the laws of the State of Texas.

 

**Section 13.****                                  ****EntireAgreement****.** THIS AGREEMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS AGREEMENT, THENOTES, AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONGTHE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANYPRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.

 

**THERE ARE NO UNWRITTENORAL AGREEMENTS AMONG THE PARTIES.**

 

**[SIGNATURES BEGIN ON NEXTPAGE]**

 

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EXECUTED effective as of thedate first above written.

 
| BORROWER:       | **CANO  PETROLEUM, INC.**                           |
|-----------------|-----------------------------------------------------|
|            | ** **                                          |
|            | ** **                                          |
|            | By:                                                 | /s/  Morris B. Smith |   |
|            |                                                | Morris B. Smith, |
|            |                                                | Senior Vice President and |
|            |                                                | Chief Financial Officer |
|            |                                                |
| **GUARANTORS:** | **SQUARE  ONE ENERGY, INC.**                        |
| ** **      | **LADDER  COMPANIES, INC.**                         |
| ** **      | **W.O.  ENERGY OF NEVADA, INC.**                    |
| ** **      | **WO  ENERGY, INC.**                                |
| ** **      | **PANTWIST,  LLC**                                  |
| ** **      | **CANO  PETRO OF NEW MEXICO, INC.**                 |
| ** **      | ** **                                          |
| ** **      | ** **                                          |
|            | Each  by:                                           |  /s/ Morris B. Smith |   |
|            |                                                | Morris B. Smith, |
|            |                                                | Vice President and |
|            |                                                | Chief Financial Officer |
|            |                                                |
| ** **      | **W.O.  OPERATING COMPANY, LTD.**                   |
|            | By:  WO Energy, Inc., its general partner |
|            |                                                |
|            | By:                                                 |  /s/ Morris B. Smith |   |
|            |                                                | Morris B. Smith, |
|            |                                                | Vice President and |
|            |                                                | Chief Financial Officer |
|            |                                                |
| ** **      | **W.O.  PRODUCTION COMPANY, LTD.**                  |
|            | By:  WO Energy, Inc., its general partner |
|            |                                                |
|            | By:                                                 | /s/  Morris B. Smith |   |
|            |                                                | Morris B. Smith, |
|            |                                                | Vice President and |
|            |                                                | Chief Financial Officer |
|                 |                                                     |  |  |  |  |  |

 

 

Signature Page to Consent Agreement

 

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| **ADMINISTRATIVE AGENT/**  |                                 |
|----------------------------|--------------------------------------|
| **ISSUING LENDER/LENDER:** | **UNION  BANK OF CALIFORNIA, N.A.,** |
|                       |                                 |
|                       |                                 |
|                       | By:                                  | /s/  Randall Osterberg |   |
|                       |                                 | Randall Osterberg |
|                       |                                 | Senior Vice President |

 

 

Signature Page to Consent Agreement

 

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|   | **NATIXIS,**as a Lender |
|--------|-------------------------|
|   | ** **              |
|   | ** **              |
|   | By:                     |  /s/ Donovan C. Broussard |   |
|   | Name:                   | Donovan  C. Brossard |   |
|   | Title:                  | Managing  Director |   |
|   |                    |
|   |                    |
|   | By:                     | /s/  Liana Tchernysheva |   |
|   | Name:                   | Liana  Tchernysheva |   |
|   | Title:                  | Director |   |
|        |                         |  |  |  |  |  |  |

 

 

Signature Page to Consent Agreement

 

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