FORM OF PLEDGE AGREEMENT
THIS SUBORDINATED PLEDGE AGREEMENT dated as of March
, 2008 (this "Pledge
Agreement") is by and among CANO PETROLEUM, INC., a Delaware corporation
("Borrower"), each subsidiary of the Borrower signatory hereto (together with
the Borrower, the "Pledgors" and individually, each a "Pledgor") and UnionBanCal
Equities, Inc. as Administrative Agent (in such capacity the "Administrative
Agent") under the Credit Agreement (as hereinafter defined), for its benefit and
the benefit of the Lenders (as hereinafter defined).
RECITALS
A.
The Borrower, the lenders party thereto from time to time (the
"Lenders"; together with the Administrative Agent, the "'Secured Parties"), and
the Administrative Agent have entered into that certain Subordinated Credit
Agreement dated of even date herewith (as it may be amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement").
B.
It is a condition precedent to the extension of credit to the
Borrower under the Credit Agreement that the Pledgors and the Administrative
Agent, on behalf of the Lenders, execute and deliver this Pledge Agreement.
C.
Each Pledgor (other than the Borrower) is a subsidiary of the
Borrower, and therefore shall derive direct and indirect benefits from the
transactions contemplated by the Credit Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged and
confessed, each Pledgor hereby agrees with the Administrative Agent for the
benefit of the Secured Parties as follows:
ARTICLE I.
DEFINITIONS.
ALL CAPITALIZED TERMS NOT OTHERWISE DEFINED
IN THIS PLEDGE AGREEMENT THAT ARE DEFINED IN THE CREDIT AGREEMENT SHALL HAVE THE
MEANINGS ASSIGNED TO SUCH TERMS BY THE CREDIT AGREEMENT.
ANY TERMS USED IN THIS
PLEDGE AGREEMENT THAT ARE DEFINED IN THE UNIFORM COMMERCIAL CODE IN EFFECT IN
THE STATE OF TEXAS FROM TIME TO TIME (THE "UCC") AND NOT OTHERWISE DEFINED
HEREIN OR IN THE CREDIT AGREEMENT, SHALL HAVE THE MEANINGS ASSIGNED TO THOSE
TERMS BY THE UCC.
ALL MEANINGS TO DEFINED TERMS, UNLESS OTHERWISE INDICATED,
ARE TO BE EQUALLY APPLICABLE TO BOTH THE SINGULAR AND PLURAL FORMS OF THE TERMS
1
DEFINED.
ARTICLE, SECTION, SCHEDULE, AND EXHIBIT REFERENCES ARE TO ARTICLES AND
SECTIONS OF AND SCHEDULES AND EXHIBITS TO THIS PLEDGE 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, 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 PLEDGE AGREEMENT SHALL
REFER TO THIS PLEDGE AGREEMENT AS A WHOLE AND NOT TO ANY PARTICULAR PROVISION OF
THIS PLEDGE AGREEMENT.
AS USED HEREIN, THE TERM "INCLUDING" MEANS "INCLUDING,
WITHOUT LIMITATION,". PARAGRAPH HEADINGS HAVE BEEN INSERTED IN THIS PLEDGE
AGREEMENT AS A MATTER OF CONVENIENCE FOR REFERENCE ONLY AND IT IS AGREED THAT
SUCH PARAGRAPH HEADINGS ARE NOT A PART OF THIS PLEDGE AGREEMENT AND SHALL NOT BE
USED IN THE INTERPRETATION OF ANY PROVISION OF THIS PLEDGE AGREEMENT.
ARTICLE