Exhibit 10.1


 


AMENDMENT NO. 1


 


                This Amendment No. 1 (“Agreement”) dated as of
February 24, 2006 (“Effective Date”) is among Cano Petroleum, Inc., a Delaware
corporation (“Borrower”), the lenders party hereto from time to time
(“Lenders”), and Union Bank of California, N.A., as administrative agent for
such Lenders (in such capacity, the “Administrative Agent”) and as issuing
lender for such Lenders (in such capacity, the “Issuing Lender”).


 


RECITALS


 


A.            The Borrower, the Lenders, the Issuing Lender and the
Administrative Agent are parties to the Credit Agreement dated as of November
29, 2005 (the “Credit Agreement”).


 


B.            The Borrower, the Administrative Agent and the Lenders
wish to, subject to the terms and conditions of this Agreement, amend certain
provisions of the Credit Agreement as set forth herein.


 


                THEREFORE, the
Borrower, the subsidiaries of the Borrower signatory hereto (the “Guarantors”),
the Lenders, the Issuing Lender and the Administrative Agent hereby agree as
follows:


 


                Section
1               Defined Terms;
Interpretation.  As used in this
Agreement, each of the terms defined in the opening paragraph and the Recitals
above shall have the meanings assigned to such terms therein.  Each term defined in the Credit Agreement and
used herein without definition shall have the meaning assigned to such term in
the Credit Agreement, unless expressly provided to the contrary.  The words “hereby”, “herein”, “hereinafter”,
“hereof”, “hereto” and “hereunder” when used in this Agreement shall refer to
this Agreement as a whole and not to any particular Article, Section,
subsection or provision of this Agreement. 
Article, Section, subsection and Exhibit references herein are to such
Articles, Sections, subsections and Exhibits of this Agreement unless otherwise
specified. All titles or headings to Articles, Sections, subsections or other
divisions of this Agreement or the exhibits hereto, if any, are only for the
convenience of the parties and shall not be construed to have any effect or
meaning with respect to the other content of such Articles, Sections,
subsections, other divisions or exhibits, such other content being controlling
as the agreement among the parties hereto.  Definitions of terms
defined in the singular or plural shall be equally applicable to the plural or
singular, as the case may be, unless otherwise indicated.


 


Section
2               Amendment to Credit Agreement.  Section 1.01 of the Credit
Agreement is hereby amended by deleting the definition of “Majority Lenders”
and replacing it in its entirety with the following:


 


“Majority Lenders” means, (a) at any time when there are more
than two Lenders, Lenders holding at least 662/3% of
the then aggregate unpaid principal amount of the Notes and outstanding Letter
of Credit Obligations held by the Lenders at such time (with the aggregate
amount of each Lender’s risk participation and funded participation in Letter
of Credit Obligations being deemed to be “held” by such Lender for purposes of
this definition); provided that, if no such principal amount or Letter
of Credit Obligation is then outstanding, “Majority Lenders” shall mean Lenders
having at least 662/3% of
the 


 


 

















 


aggregate amount of the
Commitments at such time and (b) at any time when there are one or two Lenders,
all of the Lenders.


 


Section
3               Borrower’s Representations
and Warranties.  The Borrower
represents and warrants that: (a) the representations and warranties contained
in Article IV of the Credit Agreement and the representations and
warranties contained in the Security Instruments, the Guaranties, and each of
the other Loan Documents are true and correct in all material respects on and
as of the Effective Date, as though made on and as of such date, except those
representations and warranties that speak of a certain date, which
representations and warranties were true and correct as of such date; (b) no
Default has occurred and is continuing; (c) the execution, delivery and
performance of this Agreement are within the corporate power and authority of
the Borrower and have been duly authorized by appropriate corporate action and proceedings; (d) this
Agreement constitutes a legal, valid, and binding obligation of the Borrower
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting
the rights of creditors generally and general principles of 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) the Liens under the Security Instruments are valid
and subsisting and secure Borrower’s obligations under the Loan Documents.


 


Section
4               Conditions.  This Agreement shall become effective and
enforceable against the parties hereto, and the Credit Agreement shall be
amended as provided herein, upon the occurrence of the following conditions
precedent: (a) the Administrative Agent shall have
received multiple original counterparts, as requested by the Administrative Agent,
of this Agreement duly and validly
executed and delivered by duly authorized officers of the Borrower, the
Guarantors, the Administrative Agent, and the Lenders, (b) no Default shall
have occurred and be continuing as of the Effective Date, and (c) the
representations and warranties in this Agreement shall be true and correct in
all material respects.


 


Section
5               Acknowledgements.


 


(a)           The Borrower acknowledges
that on the date hereof all Obligations are payable without defense, offset,
counterclaim or recoupment.


 


(b)           Each of the Borrower, the Guarantors,
Administrative Agent, Issuing Lender, and Lenders does hereby adopt, ratify,
and confirm the Credit Agreement, as amended hereby, and acknowledges and
agrees that the Credit Agreement, as amended hereby, and all other Loan
Documents are and remain in full force and effect, and each of the Borrower and
the Guarantors acknowledges and agrees that its liabilities under the Credit
Agreement and the other Loan Documents are not impaired in any respect by this
Agreement or the consents granted hereunder. From and after the Effective Date,
all references to the Credit Agreement and the Loan Documents shall mean such
Credit Agreement and such Loan Documents as amended by this Agreement.  This Agreement is a Loan Document for the
purposes of the 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 of Default, as applicable, under the Credit Agreement.


 


 


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(d)           Each Guarantor hereby ratifies,
confirms, acknowledges and agrees that its obligations under its Guaranty are
in full force and effect and that such Guarantor continues to unconditionally
and irrevocably guarantee the full and punctual payment, when due, whether at
stated maturity or earlier by acceleration or otherwise, all of the Guaranteed
Obligations (as defined in its Guaranty), as such Guaranteed Obligations may
have been amended by this Agreement, and its execution and deliver of this
Agreement does not indicate or establish an approval or consent requirement by
such Guarantor under its Guaranty in connection with the execution and delivery
of amendments to the Credit Agreement, the Notes or any of the other Loan
Documents.


 


Section
6               Miscellaneous.


 


(a)           This Agreement may be signed
in any number of counterparts, each of which shall be an original and all of
which, taken together, constitute a single instrument.  This Agreement may be executed by facsimile
signature and all such signatures shall be effective as originals.


 


(b)           This Agreement shall be
binding upon and inure to the benefit of the Lenders, the Borrower and the
Administrative Agent hereto and their respective successors and assigns
permitted pursuant to the Credit Agreement.


 


(c)           In the event that any one or
more of the provisions contained in this Agreement shall for any reason be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision of this Agreement.


 


(d)           This Agreement shall be
deemed to be a contract made under and shall be governed by and construed in
accordance with the laws of the State of Texas.


 


THIS AGREEMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS
AGREEMENT, THE NOTES, AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE
UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER
HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT
THERETO.


 


THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.


 


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                EXECUTED
effective as of the date first above written.


 


	
   

  	
  CANO PETROLEUM, INC. a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  
	
   

  	
   

  	
  S. Jeffrey Johnson, Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  SQUARE ONE ENERGY, INC.

  
	
   

  	
  LADDER COMPANIES, INC.

  
	
   

  	
  W.O. ENERGY OF NEVADA,
  INC.

  
	
   

  	
  WO ENERGY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  All by:

  	
  /s/ S. Jeffrey Johnson

  
	
   

  	
   

  	
  S. Jeffrey Johnson,
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  W.O. OPERATING COMPANY,
  LTD.

  
	
   

  	
   

  	
  By: WO Energy, Inc., its
  general partner

  
	
   

  	
  W.O. PRODUCTION COMPANY,
  LTD.

  
	
   

  	
   

  	
  By: WO Energy, Inc., its
  general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  All by:

  	
  /s/ S. Jeffrey Johnson

  
	
   

  	
   

  	
  S. Jeffrey Johnson,
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  UNION BANK OF CALIFORNIA,
  N.A.,

  
	
   

  	
  as Administrative Agent,
  as Issuing Lender, and as sole Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ali Ahmed

  
	
   

  	
   

  	
  Ali Ahmed, Vice President

  



 


 


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