**EXHIBIT10.3**

 

**AMENDMENT NO. 8 AND AGREEMENT**

 

                This AMENDMENT NO.8 AND AGREEMENT (“Agreement”) entered into and made effective as of January 16,2008 (“Effective Date”) is among Cano Petroleum, Inc., a Delawarecorporation (“Borrower”), the Guarantors (as defined below), the Lenders (asdefined below), and Union Bank of California, N.A., as administrative agent forsuch Lenders (in such capacity, the “Administrative Agent”) and as issuinglender (in such capacity, the “Issuing Lender”).

 

**RECITALS**

 

A.            The Borrower isparty to that certain Credit Agreement dated as of November 29, 2005, asamended by the Amendment No. 1 dated as of February 24, 2006, and asamended by the Amendment No. 2, Assignment and Agreement dated as of April 28,2006, Amendment No. 3 entered into on May 12, 2006 but made effectiveas of March 31, 2006, Amendment No. 4 dated as of June 30, 2006,Amendment No. 5 and Agreement dated as of March 6, 2007, Amendment No. 6dated as of August 13, 2007, and Amendment No. 7 and Agreement datedas of September 7, 2007 (as so amended, the “Credit Agreement”) among theBorrower, the lenders party thereto from time to time (the “Lenders”), theAdministrative Agent, and the Issuing Lender.

 

B.            The Borrower intends to sell certainworkover rigs and other related equipment, each as more particularly describedin the attached Schedule A (the “Rig Assets”) and to effect such sale (the “RigSale”), the Borrower intends to transfer such assets to a newly created,indirect subsidiary held by W.O. Operating Company, Ltd. (“W.O. Operating”) andW.O. Operating intends to sell 100% of the equity interests that it holds insuch new subsidiary to the intended purchasers of the Rig Assets.

 

C.            The anticipated Rig Saletransaction, including the creation of the new subsidiary in connectiontherewith, is limited by the terms of the Credit Agreement.

 

D.            Therefore, in order to address theprovisions of the Credit Agreement which (i) require the Borrower to takecertain action upon the creation of a new subsidiary and (ii) limit theBorrower’s ability to sell or transfer the Rig Assets, the Borrower, theLenders and the Administrative Agent wish to, subject to the terms andconditions of this Agreement make certain amendments to the Credit Agreement asprovided herein.

 

THEREFORE,the Borrower, the Guarantors, the Lenders, and the Administrative Agent herebyagree 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 

 

 

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otherwisespecified.  All references to instruments,documents, contracts, and agreements are references to such instruments,documents, contracts, and agreements as the same may be amended, supplemented,and otherwise 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 agreed that such paragraph headings are not a part of thisAgreement and shall not be used in the interpretation of any provision of thisAgreement.

 

**Section 3.****                                         ****Amendments to Credit Agreement****.**

 

(a)                                            Section 1.01 of the Credit Agreementis hereby amended by adding the following new defined terms in alphabetical order:

 

*“Amendment No. 8” means that certainAmendment No. 8 and Agreement dated as of January 16, 2008 and whichamends this Agreement.*

 

*“Rig Subsidiary” means W.O. Transition,L.C., a Texas limited liability company and a wholly owned, indirect Subsidiaryof the Borrower formed in connection with a proposed sale of the Rig Assets.*

 

*“Rig Sale” means the sale of the EquityInterests in the Rig Subsidiary to one or more unaffiliated third parties on orbefore February 28, 2007.*

 

*“Rig Assets” means certain workover rigs andother equipment, as more particularly described in Schedule A attached toAmendment No. 8.*

 

(b)                                           Section 1.01 of the Credit Agreement is hereby amendedby deleting the defined term “*Subsidiary*” inits entirety and replacing it with the following:

 

*“Subsidiary” means, with respect to any Person (the “parent”)at any date, any other Person the accounts of which would be consolidated withthose of the parent in the parent’s consolidated financial statements if suchfinancial statements were prepared in accordance with GAAP as of such date, aswell as any Person, a majority of whose outstanding Voting Securities (otherthan directors’ qualifying shares) shall at any time be owned by such parent orone or more Subsidiaries of such parent**. **Unlessotherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries”shall refer to a Subsidiary or Subsidiaries of the Borrower; provided that (a) Tri-Flow**shall not be considered a Subsidiary of theBorrower or any Guarantor and (b) Rig Subsidiary shall not be considered aSubsidiary of the Borrower or any Guarantor.*

 

(c)                                            Section 6.04 of the Credit Agreementis hereby deleted in its entirety and replaced with the following:

 

*Section 6.04**                           **Merger or Consolidation; AssetSales**.  The Borrower shall not, nor shall it permitany of its Subsidiaries to (a) merge or consolidate with or into*

 

 

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*any otherPerson without the prior consent of all of the Lenders; provided that theBorrower or any Subsidiary may merge or may be consolidated into the Borroweror any Guarantor if the Borrower or such Guarantor is the surviving entity; or (b) sell,lease, transfer, assign, farm-out, convey, or otherwise dispose of any of itsProperty (including, without limitation, any working interest, overridingroyalty interest, production payments, net profits interest, royalty interest,or mineral fee interest) other than: (i) the sale of Hydrocarbons in theordinary course of business, (ii) the sale or transfer of equipment thatis (A) obsolete, worn out, depleted or uneconomic and disposed of in theordinary course of business, (B) no longer necessary for the business ofsuch Person or (C) contemporaneously replaced by equipment of at leastcomparable value and use, (iii) the transfer of the Rig Assets by theBorrower to the Rig Subsidiary in connection with the Rig Sale, and (iv) theRig Sale.*

 

(d)                                           Section 6.21of the Credit Agreement is hereby replaced in its entirety with the following:

 

*Section 6.21.**                        **Non-Guarantor Subsidiary**. Notwithstanding anything to the contrary contained herein, including anyprovision of this Article VI, the Borrower shall not, nor shall it permitany of its Subsidiaries to, (a) create, assume, incur or suffer to existany Lien on or in respect of any of its Property for the benefit of Tri-Flow orthe Rig Subsidiary, (b) sell, assign, pledge, or otherwise transfer any ofits Properties to Tri-Flow, (c) other than the Rig Assets, sell, assign,pledge, or otherwise transfer any of its Properties to the Rig Subsidiary  or (d) make or permit to exist anyloans, advances, or capital contributions to, or make any investment in, orpurchase or commit to purchase any stock or other securities or evidences ofindebtedness of or interests in, Tri-Flow, the Rig Subsidiary or in anyProperties of Tri-Flow or of the Rig Subsidiary other than the loans, advances,capital contributions, investments, and commitments made prior to the datehereof in Tri-Flow; provided that, the respective amounts of such loans,advances, capital contributions, investments, and commitments shall not beincreased (other than by appreciation).*

 

(e)                                            Schedule 4.07which is attached to the Credit Agreement is hereby replaced in its entiretywith the Schedule 4.07 attached to this Agreement.

 

**Section 4.****                                         ****Mandatory Prepayment**. Within two Business Days after receipt of the proceeds from the Rig Sale(the “Asset Sale Proceeds”), the Borrower shall prepay the Advances or, if theAdvances have been repaid in full, make deposits into the Cash CollateralAccount to provide cash collateral for the Letter of Credit Exposure, in anamount equal to 100% of the Asset Sale Proceeds after payment of, or provisionfor, all fees and expenses incurred in connection with such Rig Sale.  The failure to comply with this Section 4shall be an immediate Event of Default under the Credit Agreement.

 

**Section 5.****                                         ****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 

 

 

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LoanDocuments 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 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 6.             ****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 are nogovernmental or other third party consents, licenses and approvals required inconnection with the execution, delivery, performance, validity andenforceability 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 7.             ****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)               TheAdministrative Agent shall have received multiple original counterparts, asrequested by the Administrative Agent, of this Agreement duly and validlyexecuted and delivered by duly authorized officers of the Borrower, theGuarantors, the Administrative Agent, and the Lenders.

 

(b)              No Default shall have occurred and be continuing as ofthe Effective Date.

 

 

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(c)               The representations and warranties in this Agreementshall be true and correct in all material respects.

 

(d)              The Borrower shall have paid all fees and expenses of theAdministrative Agent’s outside legal counsel and other consultants pursuant toall invoices presented for payment on or prior to the Effective Date.

 

**Section 8.             ****Acknowledgments and Agreements****.**

 

(a)               TheBorrower acknowledges that on the date hereof all Obligations are payablewithout defense, offset, counterclaim or recoupment.

 

(b)              The Administrative Agent and the Lenders herebyexpressly reserve all of their rights, remedies, and claims under the LoanDocuments.  Nothing in this Agreementshall constitute a waiver or relinquishment of (i) any Default or Event ofDefault under any of the Loan Documents, (ii) any of the agreements, termsor conditions contained in any of the Loan Documents, (iii) any rights orremedies of the Administrative Agent or any Lender with respect to the LoanDocuments, or (iv) the rights of the Administrative Agent or any Lender tocollect the full amounts owing to them under the Loan Documents.

 

(c)               Each of the Borrower, the Guarantors, AdministrativeAgent, and Lenders does hereby adopt, ratify, and confirm the Credit Agreement,as amended hereby, and acknowledges and agrees that the Credit Agreement, asamended hereby, is and remains in full force and effect, and the Borrower andthe Guarantors acknowledge and agree that their respective liabilities andobligations under the Credit Agreement, as amended hereby, and the Guaranty,are not impaired in any respect by this Agreement.

 

(d)              From and after the Effective Date, all references tothe Credit Agreement and the Loan Documents shall mean such Credit Agreementand such Loan Documents as amended by this Agreement.

 

(e)               This Agreement is a Loan Document for the purposes ofthe provisions of the other Loan Documents. Without limiting the foregoing, any breach of representations,warranties, and covenants under this Agreement shall be a Default or Event ofDefault, as applicable, under the Credit Agreement.

 

**Section 9.             ****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 at statedmaturity 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 10.            Counterparts.**  This Agreement may be signed in any number ofcounterparts, each of which shall be an original and all of which, takentogether, constitute a 

 

 

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singleinstrument.  This Agreement may beexecuted by facsimile signature and all such signatures shall be effective asoriginals.

 

**Section 11.            Successorsand Assigns.**  ThisAgreement shall be binding upon and inure to the benefit of the parties heretoand their respective successors and assigns permitted pursuant to the CreditAgreement.

 

**Section 12.            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 13.            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 14.           ****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 NEXT PAGE]**

 

 

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EXECUTED effective as ofthe date first above written.

 
| BORROWER:       | **CANO  PETROLEUM, INC.** |
|-----------------|---------------------------|
|            |                      |   |
|            |                      |   |
|            |                      | By: | /s/  S. Jeffrey Johnson |
|            |                      |   | S.  Jeffrey Johnson |
|            |                      |   | Chairman  and Chief Executive 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/ S. Jeffrey Johnson |
|            |                      |   | S. Jeffrey Johnson |
| ** **      |                      | ** ** | President |
|            |                      |   |
|            |                      | **W.O. OPERATING COMPANY, LTD.** |
|            |                      | By:  WO Energy, Inc., its general partner |
|            |                      |   |
|            |                      | By: | /s/  S. Jeffrey Johnson |
|            |                      |   | S.  Jeffrey Johnson |
|            |                      |   | President |
| ** **      |                      | ** ** |
|            |                      | **W.O.  PRODUCTION COMPANY, LTD.** |
|            |                      | By:  WO Energy, Inc., its general partner |
|            |                      |   |
|            |                      | By: | /s/  S. Jeffrey Johnson |
|            |                      |   | S.  Jeffrey Johnson |
|            |                      |   | President |
|                 |                           |  |  |  |  |  |  |  |

 

 

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

 

 

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

 

 

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**Schedule A**

 

**Rig Assets**

** **

** **
| ***WELL  SERVICING/CABLE TOOL RIGS***                                                      |
|--------------------------------------------------------------------------------------------|
| *** ***                                                                               |
| UNIT #313, 1989 FRANKS  1058/120 Explorer III Double Drum Well Servicing Unit, S/N-89024-7 |
|                                                                                       |
| UNIT #207, 1984 FRANKS  1058/120 Double Drum Well Servicing Unit, S/N-84002-7              |
|                                                                                       |
| UNIT #208, 1984 INGERSOLL  RAND 1058 Well Servicing Unit, 200 Series, S/N-84003-7          |
|                                                                                       |
| UNIT #209, 1983 FRANKS  1058/120 Well Servicing Unit, S/N-83047-7T-40                      |
|                                                                                       |
| UNIT #206, 1977 FRANKS  Explorer Double Drum Well Servicing Unit, S/N-74045-7,             |
|                                                                                       |
| UNIT #317, 1974 FRANKS  Explorer 1058 Double Drum Well Servicing Unit, S/N-N/A             |
|                                                                                       |
| UNIT #316, FRANKS  Cruiser 44DTMS Well Servicing Unit, S/N-1683                            |
|                                                                                       |
| UNIT #315, FRANKS 44  Pulling Unit, S/N-N/A                                                |
|                                                                                       |
| UNIT #314, 1966 FRANKS  1058DTM Rocket II Series Well Servicing Unit, S/N-66030-6     |
|                                                                                       |
| UNIT #212, 1963 FRANKS  Double Drum Pulling SN #63038-1                                    |
|                                                                                       |
| UNIT #333, WALKER NEER  C-33 Cable Tool Rig, S/N-N/A                                       |
|                                                                                       |
| UNIT #334, WALKER NEER  C-33 Cable Tool Rig, S/N-N/A                                       |

 

 

**TRUCKS AND OTHER EQUIPMENT**

 
| ***CABLE  TOOLS (Group Value)***                                                                                                                                                                                                                                                                                                                         |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *** ***                                                                                                                                                                                                                                                                                                                                             |
| 7” Casing Patch,  (10) 4”-8” Clulow Sockets, (5) 4”-6” Latch Jacks, Circle w/Jacks,  (4) 4”-6” Kick-Off Tools, (10) Sockets, (10) Friction Sockets,  (10) Drill Stems, (3) Long Stroke Jars, (5) Drilling Jars,  (20) Drill Bits, (10) Wireline Spears, (10) Cherry |
|                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                     |
| ***ROLLING  STOCK***                                                                                                                                                                                                                                                                                                                                     |
| 1977 CHEVROLET Truck,  VIN-CN1957V119993                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                     |
| 1989 FORD Bucket Truck,  VIN-1FDNK74P8KVA36049                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                     |
| 1998 INTERNATIONAL 4900  Tester Truck, VIN-1HTSDAANXWH541390                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                     |
| 1998 INTERNATIONAL 4900  Truck, VIN-1HTSDAAN3WH541389, w/Steamer                                                                                                                                                                                                                                                                                         |

 

 

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| 1998 INTERNATIONAL 4900  Boom Truck, VIN-1HTSDAAN1WH541391                                               |
|----------------------------------------------------------------------------------------------------------|
|                                                                                                     |
| UNIT #250, 1992  INTERNATIONAL 4900 Truck, VIN-1HTSDPNN4NH455505                                         |
|                                                                                                     |
| UNIT #334, 1992  INTERNATIONAL 4900 Truck, VIN-1HTSDPNNXNH441060                                         |
|                                                                                                     |
| UNIT #211, 1991  INTERNATIONAL 4700 Dump Truck, VIN-1HTSCNMPOMH392976                                    |
|                                                                                                     |
| UNIT #313, 1987  INTERNATIONAL 50-Barrell Water Truck, VIN-1HTLDUXP5HH500120                             |
|                                                                                                     |
| UNIT #344, 1986  INTERNATIONAL Truck, VIN-1HTLCHXM0GHA52418                                              |
|                                                                                                     |
| UNIT #314, 1984  INTERNATIONAL Truck, VIN-1HTLDUXN5EHA59313                                              |
|                                                                                                     |
| UNIT #209, 1983  INTERNATIONAL 1845 Truck, VIN-1HTDA1957DHA16874                                         |
|                                                                                                     |
| UNIT #212, 1981  INTERNATIONAL 1845 Truck, VIN-1HTAA1851BHA29279                                         |
|                                                                                                     |
| UNIT #208, 1981  INTERNATIONAL 60-Barrell Water Truck, VIN-2HTAA185XBCA14643                             |
|                                                                                                     |
| 1981 INTERNATIONAL  Water Truck, VIN-1HTE23272BGA13344                                                   |
|                                                                                                     |
| UNIT #334, 1981  INTERNATIONAL Truck, VIN-1HTL23277BGA21737                                              |
|                                                                                                     |
| UNIT #333, 1981  INTERNATIONAL Truck, VIN-1HTE23279BGA13180                                              |
|                                                                                                     |
| UNIT #206, 1980  INTERNATIONAL 50-Barrell Water Truck, VIN-AA185KHA16565                                 |
|                                                                                                     |
| 1978 INTERNATIONAL  Winch Truck, VIN-CF257HHA25445                                                       |
|                                                                                                     |
| UNIT #207, 1972 MACK  50-BARRELL Water Truck, VIN-R685ST29122                                            |
|                                                                                                     |
| UNIT #250, 2005 FORD  F350 1-Ton Pickup, VIN-1FDWF37P75ED29216, w/10-Barrell Tank, 2” MASSPORT Pump |
|                                                                                                     |
| UNIT #212, 2005 FORD  F250 3/4-Ton 4WD Pickup, VIN-1FTNF21575EA33114                                     |
|                                                                                                     |
| UNIT #315, 2005 FORD  F250 3/4-Ton 4WD Pickup, VIN-1FTNF21555EA33113                                     |
|                                                                                                     |
| UNIT # 201 FORD F150  1/2 TON                                                                            |
|                                                                                                     |
| UNIT # 322 FORD F250  3/4 TON                                                                            |
|                                                                                                     |
| 1989 BELSCHE Backhoe  Trailer, VIN-16JF01631K1020647                                                     |
|                                                                                                     |
| BELSCHE Backhoe  Trailer, VIN-N/A                                                                        |
|                                                                                                     |
| 1967 BEAL Belly Dump  Trailer, VIN-DHS8040671337                                                         |

 

 

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| 1983 MIM Vacuum  Trailer, VIN-61681                                                                                                       |
|-------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                      |
| (12) Assorted Tubing  Trailers, VIN’s-N/A                                                                                            |
|                                                                                                                                      |
| (2) Flat Bed  Trailers, VIN’s-N/A                                                                                               |
|                                                                                                                                      |
| Single Axle Poly Pipe  Trailer, VIN-N/A                                                                                                   |
|                                                                                                                                      |
| Poly Pipe Fusion  Machine Trailer, VIN-N/A                                                                                                |
|                                                                                                                                      |
| Pressure Washer  Trailer, VIN-N/A                                                                                                         |
|                                                                                                                                      |
| Lighting Trailer,  VIN-N/A                                                                                                                |
|                                                                                                                                      |
|                                                                                                                                      |
| ***CONSTRUCTION  EQUIPMENT***                                                                                                             |
| *** ***                                                                                                                              |
| 1998 CASE 580 SL Loader  Backhoe, S/N-JJG0204096                                                                                          |
|                                                                                                                                      |
| 1982 CATERPILLER 140G  Motor Grader, S/N-72V06257                                                                                         |
|                                                                                                                                      |
| 2005 CASE 580                                                                                                                             |
|                                                                                                                                      |
|                                                                                                                                      |
| **RELATED EQUIPMENT**                                                                                                                     |
| ** **                                                                                                                                |
| (4) BOWEN  Series-150, 3-3/4” Overshots, (28) #37590 Grapples, (16) Grapple Controls,  (6) Top Subs, (5) Guides       |
|                                                                                                                                      |
| (1) BOWEN  Series-150, 4-11/16” Overshot, (91) #6662 Grapples, (40) Grapple Controls,  (8) Top Guides, (8) Lip Guides |
|                                                                                                                                      |
| (1) BOWEN  Series-70, 4-11/16” Short Catch Overshot, (23) #10546 Grapples,  (1) Grapple Control                            |
|                                                                                                                                      |
| (1) BOWEN  Series-70, 3-3/4” Short Catch Overshot, (13) #13538 Grapples,  (2) Grapple Controls                             |
|                                                                                                                                      |
| (1) BOWEN 4-11/16”  Clulow Socket, (3) Slips                                                                               |
|                                                                                                                                      |
| (1) BOWEN 3-3/4”  Clulow Socket, (11) Slips                                                                                     |
|                                                                                                                                      |
| (4) BOWEN-ITCO  2-3/8” Tubing Releasing Spear, (12) #1348 Grapples                                                              |
|                                                                                                                                      |
| (1) BOWEN 5”  Tubing Spear, (4) #9682 Grapples                                                                                  |
|                                                                                                                                      |
| (1) BOWEN 4”  Tubing Spear, (2) #9487 Grapples                                                                                  |
|                                                                                                                                      |
| (3) Assorted  Casing Scrapers, 4”-7”                                                                                       |
|                                                                                                                                      |
| (2) 3-3/4” Bumper  Subs, (3) Bumper Sub Scratchers                                                                         |
|                                                                                                                                      |
| 2-3/8” — 2-7/8” Bulldog  Spears                                                                                            |

 

 

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| Rope Knife w/Long  Stroke Jars                                                                                                 |
|--------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                           |
| MYT Slip Type Elevator,  (3) Sets Slips                                                                                   |
|                                                                                                                           |
| LYT Slip Type Elevator,  (9) Sets Slips                                                                                   |
|                                                                                                                           |
| 5/8”, 3/4”, 7/8” Deep  Hole Rod Elevators                                                                       |
|                                                                                                                           |
| 1/2”, 5/8”, 3/4”  Shallow Hole Rod Elevators                                                                    |
|                                                                                                                           |
| (6) Single Latch  Elevators, 3-1/2” Tubing Elevator, 4-1/2” Casing Elevator, 5-1/2” Elevator               |
|                                                                                                                           |
| (2) Deep Well  Slips, w/2-3/8”, 2-7/8”, 3-1/2”, 4-1/2”, 5-1/2” Slips                             |
|                                                                                                                           |
| (2) Drill Collar  Safety Clamps, w/Wrench, Inserts                                                                        |
|                                                                                                                           |
| (5) 3-3/4” Drill  Collars                                                                                            |
|                                                                                                                           |
| (75) Assorted Crossover  Subs, 2-3/8” EUE, 2-3/8” Reg, 2-3/8” IF, 2-7/8” EUE, 3” Pin, 3-1/2” Reg |
|                                                                                                                           |
| Oil Saver                                                                                                                      |
|                                                                                                                           |
| (3) TOTCO Pad Type  Weight Indicators                                                                                     |
|                                                                                                                           |
| Flange Type Stripper  Head, w/4”, 5”, 7” Flanges                                                                |
|                                                                                                                           |
| 1997 Mack Bobtail 80  bbl water truck 1M2P267C2VM029703                                                                        |
|                                                                                                                           |
| 1990 Ford F-450 winch  truck 2FDLF47GXLCA58924                                                                                 |
|                                                                                                                           |
| 1992 Franks Double Drum  Pulling Unit w/ Mack Chassis Hand tools, sand pump and bailer, tongs                                  |
|                                                                                                                           |
| 1976 Franks Double Drum  Pulling Unit w/ carrier frame hand tools, sand pump and bailer, tongs  6VAD92906                      |
|                                                                                                                           |
| Tandem axle homemade  tubing trailer                                                                                           |
| Poly pipe trailer                                                                                                              |
| Single axle homemade  trailer tubing trailer                                                                                   |
|                                                                                                                           |
| Dozer / Trailor                                                                                                                |
| 316 2006 F-250 #19675                                                                                                          |
| 333 2006 F-250 #19958                                                                                                          |
|                                                                                                                           |
| 1998 Case 580 SL Loader  Backhoe, S/N-JJG0258766                                                                               |

 

 

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**Schedule4.07Litigation**

 

**Burnett:**

 

On March 23, 2006,the following lawsuit was filed in the 100th Judicial District Court in CarsonCounty, Texas; Cause No. 9840, The Tom L. and Anne Burnett Trust, by AnneBurnett Windfohr, Windi Phillips, Ben Fortson, Jr., George Beggs, IIIand Ed Hudson, Jr. as Co-Trustees; Anne Burnett Windfohr; and BurnettRanches, Ltd. v. Cano Petroleum, Inc., W.O. Energy of Nevada, Inc.,W. O. Operating Company, Ltd, and WO Energy, Inc.  The plaintiffs claim that the electrical wiringand equipment of Cano or certain of its subsidiaries relating to oil and gasoperations started a wildfire that began on March 12, 2006 in CarsonCounty.  The owner of the remainder ofthe mineral estate, Texas Christian University, has intervened in the suitjoining the plaintiffs’ request to terminate certain oil and natural gasleases.

 

The plaintiffs in theabove action (i) allege negligence and (ii) seek damages, including,but not limited to, damages for damage to their land and livestock, certain expensesrelated to fighting the fire and certain remedial expenses totalingapproximately $1.7 million to $1.8 million.  In addition, the plaintiffs seek (i) terminationof certain oil and natural gas leases, (ii) reimbursement for theirattorney’s fees (in the amount of at least $549,000) and (iii) exemplarydamages.  The plaintiffs also claim thatCano and its subsidiaries are jointly and severally liable as a single businessenterprise and/or a general partnership or de facto partnership.

 

On June 21, 2007,the Judge of the 100th Judicial District Court issued a FinalJudgment (a) granting motions for summary judgment in favor of Cano andcertain of its subsidiaries on plaintiffs’ claims for (i) breach ofcontract/termination of an oil and gas lease; and (ii) negligence; and (b) grantingthe plaintiffs’ no-evidence motion for summary judgment on contributorynegligence, assumption of risk, repudiation and estoppel affirmative defensesasserted by Cano and certain of its subsidiaries.  The Final Judgment has been appealed.

 

**Adcock:**

 

On April 28, 2006,the following lawsuit was filed in the 31st Judicial District Courtof Roberts County, Texas, Case No. 1922, Robert and Glenda Adcock, et al.v. Cano Petroleum, Inc., W.O. Energy of Nevada, Inc., W. O. OperatingCompany, Ltd, and WO Energy, Inc. (“Adcock”).  There are 47 plaintiffs and three groups ofintervenors that claim that the electrical wiring and equipment of Cano orcertain of its subsidiaries relating to oil and gas operations started awildfire that began on March 12, 2006 in Carson County.

 

The plaintiffs andintervenors (i) allege negligence, res ipsa loquitor, trespass andnuisance and (ii) seek damages, including, but not limited to, damages totheir land, buildings and livestock and certain remedial expenses totaling$11,297,684.  In addition, the plaintiffsand intervenors seek (i) reimbursement for their attorney’s fees and (ii) exemplarydamages.  The plaintiffs also claim thatCano and its subsidiaries are jointly and severally liable as a single businessenterprise and/or a general partnership or de facto partnership.  On August 28, 2007, one of theintervenors, Travelers Lloyds Insurance Company, filed a Notice of Nonsuitrequesting the court to sign an order dismissing its claims, which seekapproximately $367,627 of total damages, without prejudice.   The Court granted the Nonsuit on September 12,2007.

 

On September 25,2007, the Texas Judicial Panel on Multidistrict Litigation granted CanoPetroleum, Inc., W.O. Energy of Nevada, Inc., W. O. OperatingCompany, Ltd, and WO Energy, Inc.’s motion to transfer andtransferred the Adcock case to the Honorable Paul Davis, retired judge of the200th District Court of Travis County, Texas.  No further action will be taken in the 31stDistrict Court until the 200th District Court resolves all pretrialmatters and remands this case to the 31st District Court for trial.

 

**Hutchinson:**

 

On April 10, 2006,the following lawsuit was filed in the 31st Judicial District Court of RobertsCounty, Texas, Case No. 1920, Joseph Craig Hutchison and Judy Hutchison v.Cano Petroleum, Inc., W.O. Energy of Nevada, Inc., W. O. OperatingCompany, Ltd, and WO Energy, Inc. (“Hutchinson”).  The plaintiffs claim that the electricalwiring and equipment of Cano or certain of its subsidiaries relating to oil andgas operations started a wildfire that began on March 12, 2006 in CarsonCounty.  The plaintiffs (i) allegenegligence and trespass and (ii) seek undisclosed 

 

 

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damages, including, butnot limited to, damages to their land and certain remedial expenses.  In addition, the plaintiffs seek exemplarydamages.

 

On September 25,2007, the Texas Judicial Panel on Multidistrict Litigation granted theCompany’s motion to transfer and transferred this case to the HonorablePaul Davis, retired judge of the 200th District Court of Travis County,Texas.  No further action will be taken in the 31st District Courtuntil the 200th District Court resolves all pretrial matters and remands thiscase to the 31st District Court for trial.

 

On October 3, 2007,Firstbank Southwest, as Trustee for the John and Eddalee Haggard Trust,intervened in the consolidated case in the 200th District Court of TravisCounty, Texas as part of the Hutchinson case.  The intervenor claims thatthe electrical wiring and equipment of Cano or certain of its subsidiariesrelating to oil and gas operations started a wildfire that began on March 12,2006 in Carson County.  The intervenor (i) allegesnegligence and (ii) seeks undisclosed damages, including, but not limitedto damages to their land and certain remedial expenses.

 

**Chisum:**

 

On May 1, 2006, thefollowing lawsuit was filed in the 31st Judicial District Court of RobertsCounty, Texas, Case No. 1923, Chisum Family Partnership, Ltd. v.Cano, W.O. Energy of Nevada, Inc., W. O. Operating Company, Ltd, andWO Energy, Inc. (“Chisum”). The plaintiff claims that the electrical wiring and equipment of Cano orcertain of its subsidiaries relating to oil and gas operations started awildfire that began on March 12, 2006 in Carson County.  The plaintiff (i) alleges negligence andtrespass and (ii) seeks undisclosed damages, including, but not limitedto, damages to their land and certain remedial expenses.  In addition, the plaintiffs seek exemplarydamages.

 

On September 25,2007, the Texas Judicial Panel on Multidistrict Litigation granted theCompany’s motion to transfer and transferred this case to the HonorablePaul Davis, retired judge of the 200th District Court of Travis County,Texas.  No further action will be taken in the 31st District Courtuntil the 200th District Court resolves all pretrial matters and remands thiscase to the 31st District Court for trial.

 

**Martinez:**

 

On July 3, 2006, thefollowing lawsuit was filed in the 31st Judicial District Court ofRoberts County, Texas, Case No. 1928, Rebecca Lee Martinez, et al v. CanoPetroleum, Inc., W.O. Energy of Nevada, Inc., W. O. OperatingCompany, Ltd., and WO Energy, Inc. (“Martinez”).  The plaintiffs claim that the electricalwiring and equipment of Cano or certain of its subsidiaries relating to oil andgas operations started a wildfire that began on March 12, 2006 in CarsonCounty, Texas.  The plaintiffs (i) allegenegligence and (ii) seek undisclosed damages for the wrongful death of tworelatives, Gerardo Villarreal and Medardo Garcia, who they claim died as aresult of the fire.  An additional heirof one of Medardo Garcia has intervened in this case alleging similar claims.

 

On September 25,2007, the Texas Judicial Panel on Multidistrict Litigation granted CanoPetroleum, Inc., W.O. Energy of Nevada, Inc., W. O. OperatingCompany, Ltd, and WO Energy, Inc.’s motion to transfer andtransferred the Martinez case to the Honorable Paul Davis, retired judge of the200th District Court of Travis County, Texas.  No further action will be taken in the 31stDistrict Court until the 200th District Court resolves all pretrialmatters and remands this case to the 31st District Court for trial.

 

The plaintiffs andintervenor nonsuited this case on December 19, 2007 and refiled in the 348thJudicial District Court of Tarrant County, Texas as part of the Valenzuela casedescribed below.

 

**Villarreal:**

 

On August 9, 2006,the following lawsuit was filed in the 233rd Judicial District Court of GrayCounty, Texas, Yolanda Villarreal, Individually and on behalf of the Estate ofGerardo Villarreal v. Cano Petroleum, Inc., W.O. Energy of Nevada, Inc.,W. O. Operating Company, Ltd., and WO Energy, Inc. (“Villarreal”).  The plaintiffs claim that the electricalwiring and equipment of Cano or certain of its subsidiaries relating to oil andgas operations started a wildfire that began on March 12, 2006 in CarsonCounty, Texas. The plaintiffs (i) allege negligence and (ii) seekundisclosed damages, including exemplary damages, for the wrongful death ofGerardo Villarreal who they claim died as a result of the fire.  The plaintiffs also claim that Cano and itssubsidiaries are jointly and severally 

 

 

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liable under vicariousliability theories.  Relatives of RobertoChavira have intervened in the case alleging similar claims regarding the deathof Roberto Chavira.

 

On September 25,2007, the Texas Judicial Panel on Multidistrict Litigation granted CanoPetroleum, Inc., W.O. Energy of Nevada, Inc., W. O. OperatingCompany, Ltd, and WO Energy, Inc.’s motion to transfer andtransferred the Martinez case to the Honorable Paul Davis, retired judge of the200th District Court of Travis County, Texas.  No further action will be taken in the 233rdDistrict Court until the 200th District Court resolves all pretrialmatters and remands this case to the 233rd District Court for trial.

 

**SPS:**

 

On March 14, 2007,the following lawsuit was filed in 100th Judicial District Court in CarsonCounty, Texas; Cause No. 9994, Southwestern Public Service Company d/b/aXcel Energy v. Cano Petroleum, Inc., W.O. Energy of Nevada, Inc., W.O. Operating Company, Ltd, and WO Energy, Inc. (“SPS”). Theplaintiffs claim that the electrical wiring and equipment of Cano or certain ofits subsidiaries relating to oil and gas operations started a wildfire thatbegan on March 12, 2006 in Carson County.

 

The plaintiff (i) allegesnegligence and breach of contract and (ii) seeks $1,876,000 in damages forloss and damage to transmission and distribution equipment, utility poles, linesand other equipment.  In addition, theplaintiff seeks reimbursement for its attorney’s fees.  On May 15, 2007, three new plaintiffs(one of which is a former plaintiff in the Adcock matter) intervened in thelawsuit and (i) allege negligence, res ipsa loquitor, nuisance, andtrespass and (ii) seek damages, including, but not limited to, damages totheir land, buildings and livestock and certain remedial expenses totalingapproximately $201,280.  In addition, theintervenors seek (i) reimbursement for their attorney’s fees and (ii) exemplarydamages.  The intervenors also claim thatCano and its subsidiaries are jointly and severally liable as a single businessenterprise and/or as a partnership or de facto partnership.

 

On September 25,2007, the Texas Judicial Panel on Multidistrict Litigation granted CanoPetroleum, Inc., W.O. Energy of Nevada, Inc., W. O. OperatingCompany, Ltd, and WO Energy, Inc.’s motion to transfer andtransferred the SPS case to the Honorable Paul Davis, retired judge of the 200thDistrict Court of Travis County, Texas. No further action will be taken in the 100th District Courtuntil the 200th District Court resolves all pretrial matters andremands this case to the 100th District Court for trial.

 

On January 10, 2008,Philip L. Fletcher intervened in the consolidated case in the 200th DistrictCourt of Travis County, Texas as part of the SPS case.  The intervenor (i) allegesnegligence, trespass and nuisance and (ii) seeks damages, including, butnot limited to, damages to his livestock, attorney’s fees and exemplarydamages.  The intervenor also claims thatCano and its subsidiaries are jointly and severally liable as a single businessenterprise and/or as a partnership or de facto partnership.

 

On January 15, 2008,the Jones and McMordie Ranch Partnership intervened in the consolidated case inthe 200th District Court of Travis County, Texas as part of the SPS case. The intervenor (i) alleges negligence, trespass and nuisance and (ii) seeksexemplary damages.  The intervenor alsoclaims that Cano and its subsidiaries are jointly and severally liable as asingle business enterprise and/or as a partnership or de facto partnership.

 

**Burgess:**

 

On May 2, 2007, thefollowing lawsuit was filed in the 84th Judicial District Court ofHutchinson County, Texas, Case No. 37,619, Gary and Genia Burgess, et al.v. Cano Petroleum, Inc., W.O. Energy of Nevada, Inc., W.O.Operating, Ltd. and WO Energy, Inc. (“Burgess”).  Eleven plaintiffs claim that electricalwiring and equipment relating to oil and gas operations of the Company orcertain of its subsidiaries started a wildfire that began on March 12,2006 in Carson County, Texas.  Five ofthe plaintiffs are former plaintiffs in the Adcock matter.  The plaintiffs (i) allege negligence, res ipsa loquitor, nuisance, andtrespass and (ii) seek damages, including, but not limited to, damages totheir land, buildings and livestock and certain remedial expenses totalingapproximately $1,152,480.  In addition,the plaintiffs seek (i) reimbursement for their attorney’s fees and (ii) exemplarydamages.  The plaintiffs also claim thatCano and its subsidiaries are jointly and severally liable as a single businessenterprise and/or as a partnership or de facto partnership.

 

 

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On September 25,2007, the Texas Judicial Panel on Multidistrict Litigation granted CanoPetroleum, Inc., W.O. Energy of Nevada, Inc., W. O. OperatingCompany, Ltd, and WO Energy, Inc.’s motion to transfer andtransferred the Burgess case to the Honorable Paul Davis, retired judge of the200th District Court of Travis County, Texas.  No further action will be taken in the 84thDistrict Court until the 200th District Court resolves all pretrialmatters and remands this case to the 84th District Court for trial.

 

**MDL Case:**

 

On September 25, 2007, the Texas Judicial Panelon Multidistrict Litigation granted Cano Petroleum, Inc., W.O. Energyof Nevada, Inc., W. O. Operating Company, Ltd, and WO Energy, Inc.’sMotion to Transfer Related Cases to Pretrial Court pursuant to Texas Rule ofJudicial Administration 13.  The Paneltransferred to a single pretrial court for consideration of pretrial matters ofall pending cases (Adcock, Chisum, Hutchison, Villarreal,Martinez, Southwestern Public Service Company d/b/a Xcel Energy, Burgess,identified above) that assert claims against the Company and its subsidiariesrelated to wildfires beginning on March 12, 2006.  The Paneltransferred all pending cases to the Honorable Paul Davis, retired judge of the200th District Court of Travis County, Texas.  On October 19,2007, the Court entered a Case Management Order settling deadlines forcompletion of discovery in January and February of 2008 and a hearingdate for summary judgment motions on April 14, 2008.

 

On December 19, 2007, the plaintiffs and intervenorin the Martinez case nonsuited their claims in the consolidated case.

 

**Valenzuela:**

 

On December 18, 2007, the following lawsuit wasfiled in the 348th Judicial District Court of Tarrant County, Texas,Case No. 348-227907-07, Norma Valenzuela, et al. v. Cano Petroleum, Inc.,W.O. Energy of Nevada, Inc., W.O. Operating, Ltd. and WO Energy, Inc.(“Valenzuela”).  Six plaintiffs,including the two plaintiffs and intervenor from the nonsuited Martinez case, claim that the electrical wiring and equipment of Canoor certain of its subsidiaries relating to oil and gas operations started awildfire that began on March 12, 2006 in Carson County.  The plaintiffs (i) allege negligence and(ii) seek undisclosed damages for the wrongful death of four relatives,Manuel Dominguez, Roberto Chavira, Gerardo Villarreal and Medardo Garcia, whothey claim died as a result of the fire. In addition, plaintiffs seek (i) reimbursement for their attorney’sfees and (ii) exemplary damages.  The plaintiffs also claim that Cano and its subsidiaries are jointly andseverally liable as a single business enterprise and/or as a partnership or defacto partnership.  Cano and itssubsidiaries have not yet answered the lawsuit but intend to file a notice oftag along to transfer the case to the MDL proceeding in the 200thJudicial District Court of Travis County, Texas.

 

Due to the inherent risk of litigation, the outcome ofthe cases listed above is uncertain and unpredictable; however, at this time,Cano management believes the suits are without merit and is vigorouslydefending itself and its subsidiaries.

 

 

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