Exhibit 10.4


 


September 30, 2008


 


Cano Petroleum, Inc.


Burnett Plaza


801 Cherry Street


Suite 3200, Unit 25


Fort Worth, TX  76102


 


Re:                               Payment
of Prepayment Premium


 


Ladies and Gentlemen:


 


Reference is made to the Subordinated Credit Agreement dated as of March 17,
2008, as hereto amended (as so amended, the “Credit Agreement”) among
Cano Petroleum, Inc. (the “Borrower”), the lenders from time to time parties thereto
(the “Lenders”), and UnionBanCal Equities, Inc. as Administrative
Agent for the benefit of the Lenders (in such capacity, the “Administrative
Agent”). Unless otherwise defined in this letter, each term used in
this letter which is defined in the Credit Agreement has the meaning assigned
to such term in the Credit Agreement.


 


The Borrower has advised the Administrative Agent and the Lenders that
the Borrower will make a voluntary prepayment in full of all outstanding
principal, interest and fees under the Credit Agreement on September 30,
2008 (“Payment Date”). Pursuant to Section 2.05 of the Credit
Agreement, such prepayment of principal must be accompanied by, among other
things, a prepayment premium equal to 2.00% of the principal amount being
prepaid. The Borrower and the Lenders acknowledge and agree that a prepayment
in full of the principal amount of the Advances on the Payment Date would
result in a prepayment premium equal to $300,000.00 (“Prepayment Premium
Amount”). The Borrower has requested that the Lenders accept a portion of
such Prepayment Premium Amount after the Payment Date. Notwithstanding anything
to the contrary contained in the Credit Agreement or in any other Loan
Document, the Lenders and the Borrower hereby agree that (a) $262,500.00
of the Prepayment Premium Amount shall be paid on the Payment Date and (b) $37,500.00
of the Prepayment Premium Amount shall be paid by the Borrower on or prior to
the 75th day after the Payment Date. Notwithstanding the foregoing, UnionBanCal Equities, Inc. shall
waive the installment of $37,500.00 if either (i) the Borrower and UnionBanCal Equities, Inc. enter
into and close a senior, second lien credit facility with an initial commitment
of at least $15,000,000.00 (“New Facility”) by October 31, 2008 or (ii) UnionBanCal Equities, Inc. elects
not to enter into and close the New Facility other than as a result of (A) the
Borrower’s failure to meet the customary conditions precedent for the closing
of the New Facility by October 31, 2008 or (B) a change, occurrence or development that has
occurred after the date hereof or has become known to UnionBanCal Equities, Inc.
after the date hereof, that is reasonably likely in the opinion of


 

















 


UnionBanCal
Equities, Inc., to have a material adverse effect on the business,
prospects, assets, liabilities, operations, or condition (financial or otherwise)
of the Borrower and its subsidiaries and affiliates).


 


This letter agreement (“Agreement”) shall not be assignable by
the Borrower without the prior written consent of UnionBanCal Equities, Inc. and
may not be amended or otherwise modified except in writing executed by the
Borrower and UnionBanCal Equities, Inc.
This Agreement may be executed in any number of counterparts, each of
which shall be an original and all of which, when taken together, shall
constitute one agreement. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas. This Agreement is not intended
to confer any benefits upon, or create any rights in favor of, any Person other
than the parties hereto. The existence and terms of this Agreement shall be
kept confidential; provided that the terms may be disclosed (i) to such of
your employees and affiliates, officers and directors and legal, accounting and
other advisors who have a need to know such information, are informed by you of
the confidential nature of the information, and are subject to appropriate
confidentiality restrictions, and (ii) as may be required by applicable
law or regulations or by an order of a court or governmental agency of
competent jurisdiction, provided that you give us prior notice before sharing
any such information pursuant to such applicable law or regulations


 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  UNIONBANCAL EQUITIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ted
  McNulty

  
	
   

  	
  Name:

  	
  Ted McNulty

  
	
   

  	
  Title:

  	
  SVP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Derrick
  Pan

  
	
   

  	
  Name:

  	
  Derrick Pan

  
	
   

  	
  Title:

  	
  V.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
  ACCEPTED AND AGREED TO

  	
   

  
	
  This 30th day of September, 2008.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CANO PETROLEUM, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ S.
  Jeffrey Johnson

  	
   

  
	
  Name:

  	
  Jeff Johnson

  	
   

  
	
  Title:

  	
  Chairman & CEO

  	
   

  
										



 


2

















 


	
  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

  	
   

  
	
  Name:

  	
  Jeff Johnson

  	
   

  
	
  Title:

  	
  President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  W.O. OPERATING COMPANY, LTD.

  	
   

  
	
  By: WO Energy, Inc., its general
  partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ S.
  Jeffrey Johnson

  	
   

  
	
  Name:

  	
  Jeff Johnson

  	
   

  
	
  Title:

  	
  President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  W.O. PRODUCTION COMPANY, LTD.

  	
   

  
	
  By: WO Energy, Inc., its general
  partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ S.
  Jeffrey Johnson

  	
   

  
	
  Name:

  	
  Jeff Johnson

  	
   

  
	
  Title:

  	
  President

  	
   

  
						



 


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