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EXHIBIT 10.99  

 
 

FIRST AMENDMENT TO SECURITY AGREEMENT    
    

        This First Amendment to Security Agreement (this "Agreement") is entered into on July 9, 2007 but made
effective as of September 6, 2006 ("Effective Date") by and among CANO PETROLEUM, INC., a Delaware corporation (the
"Borrower") and the subsidiaries of the Borrower signatory hereto (together with the Borrower, collectively the
"Grantors" and individually, a "Grantor"), and Union Bank of California, N.A. in its capacity as
administrative agent under the Senior Credit Agreement (as hereinafter defined) (in such capacity, the "Senior Agent") and amends that certain Security
Agreement dated as of November 29, 2005 by and among the Grantors and Union Bank of California, N.A., in its capacity as the Collateral Trustee (as hereinafter defined), as heretofore
supplemented (as so supplemented, the "Security Agreement"). 

 
 

INTRODUCTION    
    

        A.    The
Borrower is party to that certain Credit Agreement dated as November 29, 2005 among the Borrower, the lenders party thereto from time to time (the
"Senior Lenders"), and Union Bank of California, N.A., as administrative agent for the Lenders (the "Senior
Agent") and as issuing lender (the "Issuing Lender"), as heretofore amended (as so amended and as the same may be amended,
restated, supplemented or otherwise modified from time to time, the "Senior Credit Agreement"). 

        B.    The
Borrower was also party to that certain Subordinated Credit Agreement dated as of November 29, 2005 among the Borrower, the lenders party thereto from time to
time (the "Subordinated Lenders") and Energy Components SPC EEP Energy Exploration and Production Segregated Portfolio, as administrative agent for the
Subordinated Lenders (in such capacity, the "Subordinated Agent"), as heretofore amended (as so amended, the "Subordinated
Credit Agreement"; together with the Senior Credit Agreement, the "Credit Agreements"). 

        C.    In
connection with the Credit Agreements, the Senior Agent, the Senior Lenders, the Subordinated Agent, the Subordinated Lenders, certain Grantors, and the Mortgagor
entered into that certain Collateral Trust and Intercreditor Agreement dated as of November 29, 2005 (the "Collateral Trust Agreement") pursuant
to which Union Bank of California, N.A. was appointed as collateral trustee (in such capacity, the "Collateral Trustee"), including the Security
Agreement. 

        D.    On
the Effective Date, all amounts due and payable under the Subordinated Credit Agreement and the other Loan Documents (as defined in the Subordinated Credit Agreement)
owing to the Subordinated Lenders and Subordinated Agent were paid in full and all Commitments (as defined in the Subordinated Credit Agreement) were terminated. 

        E.    As
of the Effective Date, the Collateral Trust Agreement has been terminated and all liens, security interests and other rights granted to Union Bank of California, N.A.
in its capacity as the Collateral Trustee and as the secured party pursuant to various Security Documents (as defined in the Collateral Trust Agreement), including the Security Agreement, were
assigned to Union Bank of California, N.A. in its capacity as the Senior Agent (the "Assignment"). 

        F.     As
a result, the parties hereto desire to amend the Security Agreement as more particularly set forth herein. 

        NOW,
THEREFORE, in connection with the foregoing and for other good and valuable consideration, the Grantors and the Senior Agent hereby agree as follows: 

        Section 1.    Recitals; Definitions.    The recitals to this Agreement are hereby
incorporated herein by this reference thereto. The meanings of all defined terms in the Security Agreement, as defined therein, shall have the same meanings when used herein, except as otherwise set
forth herein. 

 

        Section 2.    Amendments.    The Security Agreement is hereby amended as follows: 

        (a)   The
term "Secured Parties" as used in the Security Agreement shall now mean the Swap Counterparties, the Senior Agent,
the Issuing Lender, and the Senior Lenders. 

        (b)   The
term "Master Debt Agreements" as used in the Security Agreement shall now mean the Senior Credit Agreement. 

        (c)   Each
reference to the "Collateral Trust Agreement" in Section 1 of the Security Agreement is deleted and replaced
with the "Senior Credit Agreement". 

        (d)   The
third sentence of Section 1(a) of the Security Agreement is hereby deleted in its entirety. 

        (e)   The
definitions for "Commitments", "Master Debt Documents",
"Permitted Liens", and "Secured Obligations" found in Section 1 of the Security Agreement are
hereby deleted and replaced with the following corresponding terms: 

"Commitments" means the "Commitments" as defined in the Senior Credit Agreement.

"Master Debt Documents" means the Senior Loan Documents.

"Permitted Liens" means those Liens permitted under the Senior Credit Agreement.

"Secured Obligations" means, collectively, all of the following: (i) all Obligations (as defined in the Senior Credit Agreement) now or hereafter owed by the Borrower,
any Guarantor, or any of their respective Subsidiaries to the Secured Parties, (ii) all amounts now or hereafter owed by the Borrower, any Debtor, or any of their respective Subsidiaries under
this Security Agreement or the other Master Debt Documents to the Senior Agent, and (iii) any increases, extensions, modifications, substitutions, amendments and renewals thereof, whether for
principal, interest, fees, expenses, indemnification, or otherwise, including any post-petition interest in the event of a bankruptcy, to the extent such interest is enforceable by law.
All such obligations shall be referred to in this Security Agreement as the "Secured Obligations".

        (f)    Each
reference to the "Collateral Trustee" in Sections 2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 13, 14, 15, 16, and 17 of
the Security Agreement is hereby deleted and replaced with the "Senior Agent". 

        (g)   The
first parenthetical found in Section 7(a) of the Security Agreement is hereby deleted and replaced with the following: 

(and shall at the written request of the Majority Lenders)

        (h)   Section 11
of the Security Agreement is hereby deleted and replaced with the following: 

Section 11    Application of Collateral.    The proceeds of any sale, or other realization (other than that received from a sale or other realization
permitted by the Senior Credit Agreement) upon all or any part of the Collateral pledged by any Grantor shall be applied by the Senior Agent as set forth in Section 7.06 of the Senior Credit
Agreement.

        (i)    Sections
17(b) and 17(c) of the Security Agreement are hereby deleted and replaced with the following: 

(b)    Amendments; Etc.    No amendment or waiver of any provision of this Security Agreement nor consent to any departure by any Grantor herefrom shall be
effective unless the same shall be in writing and executed by the affected Grantor and the Senior Agent (acting upon the written direction of the Majority Lenders), and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose for which given.

(c)    Addresses for Notices.    All notices and other communications provided for hereunder shall be made in the manner and to the addresses set forth in
the Senior Credit Agreement.

2

 

        (j)    Section 17(k)
of the Security Agreement is hereby deleted and replaced with the following: 

(k)    Entire Agreement.    THIS SECURITY AGREEMENT AND THE OTHER MASTER DEBT DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.

        (k)   Annex
1 to the Security Agreement is hereby deleted and replaced with Annex 1 attached hereto. 

        Section 3.    Representations, Covenants and Warranties.    Each Grantor hereby
reaffirms all covenants, representations and warranties made in the Security Agreement as such may be amended as a result of this Agreement, and hereby represents and warrants that the representations
and warranties set forth therein, as such may be amended as a result of this Agreement, are true and correct in all material respects on and as of the date hereof, before and after giving effect to
this Agreement, as though made on and as of the date hereof, except to the extent that any such representation or warranty expressly relates solely to an earlier date, in which case it shall have been
true and correct in all material respects as of such earlier date. 

        Section 4.    REAFFIRMATION.    The parties hereto further agree that except as amended
hereby, all of the terms, obligations, rights and conditions of the Security Agreement have not been amended in any way and are and will remain binding upon, and enforceable against the parties
thereto. As amended by this Agreement, the Security Agreement shall remain in full force and effect. Each Grantor hereby REAFFIRMS, RATIFIES, CONFIRMS, AND ACKNOWLEDGES the Security Agreement, as
amended hereby in favor of Union Bank of California, N.A., as Senior Agent as the secured party, and grantee for the benefit of the Secured Parties. Each Grantor hereby acknowledges and agrees that
the Security Agreement, the Liens granted pursuant thereto and such Grantor's obligations thereunder shall continue in full force and effect to secure the payment of the Secured Obligations and to
cover the Collateral and that this Agreement shall in no manner impair or affect the validity or enforceability of the Security Agreement or the Liens granted pursuant thereto. None of the rights,
titles and interests existing and to exist under the Security Agreement are hereby released, diminished or impaired. This Agreement is a Senior Loan Document for the purposes of the provisions of the
other Senior Loan Documents. 

        Section 5.    Miscellaneous.    If any term, covenant, condition or provision hereof is
invalid, illegal or unenforceable in any respect, the other provisions hereof will remain in full force and effect and will be liberally construed in favor of the Senior Agent in order to carry out
the provisions hereof. The article and section headings in this Agreement are inserted for convenience of reference and shall not be considered a part of this Agreement or used in its interpretation. 

        Section 6.    Governing Law.    This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas. 

        Section 7.    Counterparts.    The parties may execute this Agreement in counterparts,
each of which constitutes an original, and all of which, collectively, constitute only one agreement. Delivery of an executed counterpart signature page by facsimile is as effective as executing and
delivering this Agreement in the presence of the other parties to this Agreement. In proving this Agreement, a party must produce or account only for the executed counterpart of the party to be
charged. 

THIS WRITTEN AGREEMENT AND THE SENIOR LOAN DOCUMENTS AS DEFINED IN THE SECURITY AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

[Signatures
Begin on Next Page] 

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        EXECUTED effective as of the date first above written. 

	 	 	CANO PETROLEUM, INC.
	

 	
 	

By:	

/s/ S. Jeffrey Johnson
 S. Jeffrey Johnson

Chairman and Chief Executive Officer

	    	 	 	 
	

 	
 	
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

	    	 	 	 
	

 	
 	
UNION BANK OF CALIFORNIA, N.A.,

as Senior Agent
	

 	
 	

By:	

/s/ Randall Osterberg
 Randall Osterberg

Senior Vice President

   

   

Signature
page to First Amendment to Security Agreement 

   Annex 1 

        SUPPLEMENT
NO. [            ] dated as of [            ] (the "Supplement"), to the
Security Agreement dated as of November 29, 2005 (as amended, supplemented or otherwise modified from time to time, the "Security Agreement"), by
and among CANO PETROLEUM, INC., a Delaware corporation ("Borrower"), each subsidiary of Borrower signatory thereto (together with the Borrower,
the "Grantors" and individually, a "Grantor") and Union Bank of California, N.A. as Senior Agent under
the Senior Credit Agreement (as hereinafter defined) for the benefit of itself and the Secured Parties (as hereinafter defined). 

        A.    Reference
is made to the following documents related to extension of credit to the Borrower: 

        (i)    that
certain Credit Agreement dated as of November 29, 2005 (as it may be amended, restated or otherwise modified from time to time, the
"Senior Credit Agreement") by and among the Borrower, the lenders party thereto from time to time (the "Senior
Lenders"), and Union Bank of California, N.A., as administrative agent for such Senior Lenders (the "Senior Agent"); and 

        (ii)   those
Hedge Contracts (as defined in the Senior Credit Agreement) that the Borrower, the Guarantors (as defined in the Senior Credit Agreement), or any of their
Subsidiaries may from time to time enter into one or more with a Senior Lender or one of their Affiliates (a "Swap Counterparty", and together with the
Senior Agent, the Issuing Lender, and the Senior Lenders, the "Secured Parties"). 

        B.    Capitalized
terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Security Agreement and the Senior Credit Agreement. 

        C.    The
Grantors have entered into the Security Agreement in order to induce the Senior Lenders to make loans and the Issuing Lender to issue letters of credit under the
Senior Credit Agreement. Pursuant to Section 6.15 of the Senior Credit Agreement, each Subsidiary of the Borrower that was not in existence on the date of the Senior Credit Agreement is
required to enter into the Security Agreement as a Grantor upon becoming a Subsidiary. Section 17(j) of the Security Agreement provides that additional Subsidiaries of the Borrower may become
Grantors under the Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary of the Borrower (the "New
Grantor") is executing this Supplement in accordance with the requirements of the Senior Credit Agreement to become a Grantor under the Security Agreement in order to induce
the Senior Lenders to make additional loans and the Issuing Lender to issue additional letters of credit and as consideration for loans previously made and letters of credit previously issued. 

        Accordingly,
the Senior Agent and the New Grantor agree as follows: 

        In
accordance with Section 17(j) of the Security Agreement, the New Grantor by its signature below becomes a Grantor under the Security Agreement with the same force and effect as
if originally named therein as a Grantor and the New Grantor hereby agrees (a) to all the terms and provisions of the Security Agreement applicable to it as a Grantor thereunder and
(b) represents and warrants that the representations and warranties made by it as a Grantor thereunder are true and correct on and as of the date hereof in all material respects. In furtherance
of the foregoing, the New Grantor, as security for the payment and performance in full of the Secured Obligations (as defined in the Security Agreement), does hereby create and grant to the Senior
Agent, its successors and assigns, for the benefit of the Secured Parties, their successors and assigns, a continuing security interest in and lien on all of the New Grantor's right, title and
interest in and to the Collateral (as defined in the Security Agreement) of the New Grantor. Each reference to a "Grantor" in the Security Agreement shall be deemed to include the New Grantor. The
Security Agreement is hereby incorporated herein by reference. 

1

 

        B.    The
New Grantor represents and warrants to the Senior Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at
law)). 

        C.    This
Supplement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This
Supplement shall become effective when the Senior Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Grantor and the Senior Agent.
Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement. 

        D.    The
New Grantor hereby represents and warrants that set forth on Schedule 1 attached hereto are (a) its sole
jurisdiction of formation and type of organization, (b) the location of all records concerning its Accounts, General Intangibles, or any other Collateral, (c) its federal tax
identification number and the organizational number, and (d) all names used by it during the last five years prior to the date of this Supplement. 

        E.    Except
as expressly supplemented hereby, the Security Agreement shall remain in full force and effect. 

        F.     THIS
SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF
THE SECURITY INTERESTS HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. 

        G.    In
case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be
required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions
contained herein and in the Security Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 

        H.    All
communications and notices hereunder shall be in writing and given as provided in the Security Agreement. All communications and notices hereunder to the New Grantor
shall be given to it at the address set forth under its signature hereto. 

        I.     The
New Grantor agrees to reimburse the Senior Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the
reasonable fees, other charges and disbursements of counsel for the Senior Agent. 

        THIS SUPPLEMENT, THE SECURITY AGREEMENT AND THE OTHER MASTER DEBT DOCUMENTS, REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

        THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.

2

 

        IN
WITNESS WHEREOF, the New Grantor and the Senior Agent have duly executed this Supplement to the Security Agreement as of the day and year first above written. 

	 	 	[Name of New Grantor],
	 	 	By:	    

	 	 	Name:	    

	 	 	Title:	    

	

 	
 	

Address:	

    
    

	

 	
 	

[Senior Agent]
	

 	
 	

By:	

    

	 	 	Name:	    

	 	 	Title:	    

3

 
Schedule 1

Supplement No.           

to the Security Agreement 

	New Grantor:	 	[GRANTOR]
	

Jurisdiction of Formation/Filing:	
 	

[STATE]
	

Type of Organization:	
 	

[ENTITY TYPE]
	

Address where records for Collateral are kept:	
 	

[ADDRESS]
	

 	
 	

[CITY, STATE        ZIP]
	

Organizational Number:	
 	

	

Federal Tax Identification Number:	
 	

	

Prior Names:	
 	

4

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FIRST AMENDMENT TO SECURITY AGREEMENT

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EXHIBIT 10.100  

 
 

FIRST AMENDMENT TO PLEDGE AGREEMENT    
    

        This First Amendment to Pledge Agreement (this "Agreement") is entered into on July 9, 2007 but made
effective as of September 6, 2006 ("Effective Date") by and among CANO PETROLEUM, INC., a Delaware corporation (the
"Borrower") and the subsidiaries of the Borrower signatory hereto (together with the Borrower, collectively the
"Pledgors" and individually, a "Pledgor"), and Union Bank of California, N.A. in its capacity as
administrative agent under the Senior Credit Agreement (as hereinafter defined) (in such capacity, the "Senior Agent") and amends that certain Pledge
Agreement dated as of November 29, 2005 by and among the Grantors and Union Bank of California, N.A., in its capacity as the Collateral Trustee (as hereinafter defined), as heretofore
supplemented (as so supplemented, the "Pledge Agreement"). 

 
 

INTRODUCTION    
    

        A.    The
Borrower is party to that certain Credit Agreement dated as November 29, 2005 among the Borrower, the lenders party thereto from time to time (the
"Senior Lenders"), and Union Bank of California, N.A., as administrative agent for the Lenders (the "Senior
Agent") and as issuing lender (the "Issuing Lender"), as heretofore amended (as so amended and as the same may be amended,
restated, supplemented or otherwise modified from time to time, the "Senior Credit Agreement"). 

        B.    The
Borrower was also party to that certain Subordinated Credit Agreement dated as of November 29, 2005 among the Borrower, the lenders party thereto from time to
time (the "Subordinated Lenders") and Energy Components SPC EEP Energy Exploration and Production Segregated Portfolio, as administrative agent for the
Subordinated Lenders (in such capacity, the "Subordinated Agent"), as heretofore amended (as so amended, the "Subordinated
Credit Agreement"; together with the Senior Credit Agreement, the "Credit Agreements"). 

        C.    In
connection with the Credit Agreements, the Senior Agent, the Senior Lenders, the Subordinated Agent, the Subordinated Lenders, certain Grantors, and the Mortgagor
entered into that certain Collateral Trust and Intercreditor Agreement dated as of November 29, 2005 (the "Collateral Trust Agreement") pursuant
to which Union Bank of California, N.A. was appointed as collateral trustee (in such capacity, the "Collateral Trustee"), including the Pledge
Agreement. 

        D.    On
the Effective Date, all amounts due and payable under the Subordinated Credit Agreement and the other Loan Documents (as defined in the Subordinated Credit Agreement)
owing to the Subordinated Lenders and Subordinated Agent were paid in full and all Commitments (as defined in the Subordinated Credit Agreement) were terminated. 

        E.    As
of the Effective Date, the Collateral Trust Agreement has been terminated and all liens, security interests and other rights granted to Union Bank of California, N.A.
in its capacity as the Collateral Trustee and as the secured party pursuant to various Security Documents (as defined in the Collateral Trust Agreement), including the Pledge Agreement, were assigned
to Union Bank of California, N.A. in its capacity as the Senior Agent (the "Assignment"). 

        F.     As
a result, the parties hereto desire to amend the Pledge Agreement as more particularly set forth herein. 

        NOW,
THEREFORE, in connection with the foregoing and for other good and valuable consideration, the Pledgors and the Senior Agent hereby agree as follows: 

        Section 1.    Recitals; Definitions.    The recitals to this Agreement are hereby
incorporated herein by this reference thereto. The meanings of all defined terms in the Pledge Agreement, as defined therein, shall have the same meanings when used herein, except as otherwise set
forth herein. 

 

        Section 2.    Amendments.    The Pledge Agreement is hereby amended as follows: 

        (a)   The
term "Secured Parties" as used in the Pledge Agreement shall now mean the Swap Counterparties, the Senior Agent, the
Issuing Lender, and the Senior Lenders. 

        (b)   The
term "Master Debt Agreements" as used in the Pledge Agreement shall now mean the Senior Credit Agreement. 

        (c)   Each
reference to the "Collateral Trust Agreement" in Section 1 of the Pledge Agreement is deleted and replaced
with the "Senior Credit Agreement". 

        (d)   The
third sentence of Section 1(a) of the Pledge Agreement is hereby deleted in its entirety. 

        (e)   Each
reference to the "Collateral Trustee" found in the Pledge Agreement is hereby deleted and replaced with the
"Senior Agent". 

        (f)    Section 2.01(a)
of the Pledge Agreement is hereby deleted and replaced with the following: 

(a)    Each Pledgor hereby pledges to the Senior Agent, and grants to the Senior Agent, for the benefit of the Secured Parties, a continuing security interest in, the
Pledged Collateral, as defined in Section 2.02 below. This Pledge Agreement shall secure (i) all Obligations (as defined in the Senior Credit Agreement) now or hereafter existing,
(ii) all other amounts now or hereafter owed by the Borrower, any Pledgor, or any of their respective Subsidiaries under this Pledge Agreement or the other Loan Documents to the Senior Agent or
any other Secured Party, and (iii) any increases, extensions, modifications, substitutions, amendments, restatements and renewals of any of the foregoing obligations, whether for principal,
interest, fees, expenses, indemnification or otherwise. All such obligations shall be referred to in this Pledge Agreement as the "Secured Obligations".

        (g)   Section 5.05
of the Pledge Agreement is hereby deleted and replaced with the following: 

5.05    Application of Collateral.    The proceeds of any sale, or other realization (other than that received from a sale or other realization permitted by
the Senior Credit Agreement) upon all or any part of the Pledged Collateral pledged by the Pledgors shall be applied by the Senior Agent as set forth in Section 7.06 of the Senior Credit
Agreement.

        (h)   Sections
7.02 and 7.03 of the Pledge Agreement are hereby deleted and replaced with the following: 

7.02    Amendments, Etc.    No amendment or waiver of any provision of this Pledge Agreement nor consent to any departure by any Pledgor herefrom shall be
effective unless made in writing and executed by the affected Pledgor and the Senior Agent (acting upon the written direction of the Majority Lenders), and such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.

7.03    Addresses for Notices.    All notices and other communications provided for hereunder shall be in the manner and to the addresses set forth in the
Senior Credit Agreement.

        (i)    Section 7.13
of the Pledge Agreement is hereby deleted and replaced with the following: 

7.13    Entire Agreement.    THIS PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

        THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.

        (j)    Annex
1 to the Pledge Agreement is hereby deleted and replaced with Annex 1 attached hereto. 

2

 

        Section 3.    Representations, Covenants and Warranties.    Each Grantor hereby
reaffirms all covenants, representations and warranties made in the Pledge Agreement as such may be amended as a result of this Agreement, and hereby represents and warrants that the representations
and warranties set forth therein, as such may be amended as a result of this Agreement, are true and correct in all material respects on and as of the date hereof, before and after giving effect to
this Agreement, as though made on and as of the date hereof, except to the extent that any such representation or warranty expressly relates solely to an earlier date, in which case it shall have been
true and correct in all material respects as of such earlier date. 

        Section 4.    REAFFIRMATION.    The parties hereto further agree that except as amended
hereby, all of the terms, obligations, rights and conditions of the Pledge Agreement have not been amended in any way and are and will remain binding upon, and enforceable against the parties thereto.
As amended by this Agreement, the Pledge Agreement shall remain in full force and effect. Each Grantor hereby REAFFIRMS, RATIFIES, CONFIRMS, AND ACKNOWLEDGES the Pledge Agreement, as amended hereby in
favor of Union Bank of California, N.A., as Senior Agent as the secured party, and
grantee for the benefit of the Secured Parties. Each Grantor hereby acknowledges and agrees that the Pledge Agreement, the Liens granted pursuant thereto and such Grantor's obligations thereunder
shall continue in full force and effect to secure the payment of the Secured Obligations and to cover the Collateral and that this Agreement shall in no manner impair or affect the validity or
enforceability of the Pledge Agreement or the Liens granted pursuant thereto. None of the rights, titles and interests existing and to exist under the Pledge Agreement are hereby released, diminished
or impaired. This Agreement is a Senior Loan Document for the purposes of the provisions of the other Senior Loan Documents. 

        Section 5.    Miscellaneous.    If any term, covenant, condition or provision hereof is
invalid, illegal or unenforceable in any respect, the other provisions hereof will remain in full force and effect and will be liberally construed in favor of the Senior Agent in order to carry out
the provisions hereof. The article and section headings in this Agreement are inserted for convenience of reference and shall not be considered a part of this Agreement or used in its interpretation. 

        Section 6.    Governing Law.    This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas. 

        Section 7.    Counterparts.    The parties may execute this Agreement in counterparts,
each of which constitutes an original, and all of which, collectively, constitute only one agreement. Delivery of an executed counterpart signature page by facsimile is as effective as executing and
delivering this Agreement in the presence of the other parties to this Agreement. In proving this Agreement, a party must produce or account only for the executed counterpart of the party to be
charged. 

THIS WRITTEN AGREEMENT AND THE SENIOR LOAN DOCUMENTS AS DEFINED IN THE PLEDGE AGREEMENT REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

[Signatures
Begin on Next Page] 

3

        EXECUTED effective as of the date first above written. 

	 	 	CANO PETROLEUM, INC.
	

 	
 	

By:	

/s/ S. Jeffrey Johnson
 S. Jeffrey Johnson

Chief Executive Officer

	    	 	 	 
	

 	
 	
W.O. ENERGY OF NEVADA, INC.

WO ENERGY, INC.
	

 	
 	

Each by:	

/s/ S. Jeffrey Johnson
 S. Jeffrey Johnson

President

	    	 	 	 
	

 	
 	
UNION BANK OF CALIFORNIA, N.A.,

as Senior Agent
	

 	
 	

By:	

/s/ Randall Osterberg
 Randall Osterberg

Senior Vice President

   

   

   

   

   

   

   

Signature
page to First Amendment to Pledge Agreement 

  

Annex 1 

        SUPPLEMENT
NO. [            ] dated as of [            ] (the "Supplement"), to the
Pledge Agreement dated as of November 29, 2005 (as amended, supplemented or otherwise modified from time to time, the "Pledge Agreement") by and
among CANO PETROLEUM, INC., a Delaware corporation ("Borrower"), each other party signatory hereto (together with the Borrower, the
"Pledgors" and individually, each a "Pledgor") and Union Bank of California, N.A. as administrative
agent (in such capacity, the "Senior Agent") under the Senior Credit Agreement (as hereinafter defined) for the benefit of the Secured Parties (as
hereinafter defined). 

 
 

RECITALS    
    

        A.    Reference
is made to the following documents related to extension of credit to the Borrower: 

        (i)    that
certain Credit Agreement dated as of November 29, 2005 (as it may be amended, restated or otherwise modified from time to time, the
"Senior Credit Agreement") by and among the Borrower, the lenders party thereto from time to time (the "Senior
Lenders"), and the Senior Agent; and 

        (ii)   those
Hedge Contracts (as defined in the Senior Credit Agreement) that the Borrower or any of its Subsidiaries may from time to time enter into one or more with a
Senior Lender or one of their Affiliates (a "Swap Counterparty", and together with the Senior Agent, the Issuing Lender, and the Senior Lenders, the
"Secured Parties"). 

        B.    The
Pledgors have entered into the Pledge Agreement in order to induce the Senior Lenders to make loans and the Issuing Lender to issue letters of credit under the Senior
Credit Agreement. Pursuant to Section 6.15 of the Senior Credit Agreement, the equity holder of each new Subsidiary of the Borrower that was not in existence on the date of the Senior Credit
Agreement is required to enter into the Pledge Agreement as a Pledgor. The undersigned Subsidiary of the Borrower (the "New Pledgor") is executing this
Supplement in accordance with the requirements of the Senior Credit Agreement to become a Pledgor under the Pledge Agreement in order to induce the Senior Lenders to make additional loans and the
Issuing Lender to issue additional letters of credit and as consideration for loans previously made and letters of credit previously issued.][The Borrower is executing this
Supplement in accordance with the requirements of the Credit Agreement to supplement its Pledged Collateral under the Pledge Agreement in order to induce the Lenders to make additional Advances and
the Issuing Lender to issue additional Letters of Credit and as consideration for Advances previously made and Letters of Credit previously issued.] 

        C.    Capitalized
terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Pledge Agreement and the Senior Credit Agreement. 

        Accordingly,
the Senior Agent and the [New Pledgor][Borrower] agree as follows: 

Section 1.    [In
accordance with Section 7.12 of the Pledge Agreement, the New Pledgor by its signature below becomes a Pledgor under the Pledge Agreement with the
same force and effect as if originally named therein as a Pledgor and the New Pledgor hereby agrees (a) to all the terms and provisions of the Pledge Agreement applicable to it as a Pledgor
thereunder and (b) represents and warrants that the representations and warranties made by it as a Pledgor thereunder are true and correct on and as of the date hereof in all material
respects.] [The Borrower by its signature below (a) reaffirms all the terms and provisions of the Pledge Agreement applicable to it as a Pledgor thereunder and
(b) represents and warrants that the representations and warranties made by it as a Pledgor thereunder are true and correct on and as of the date hereof in all material respects. The Pledge
Agreement is hereby incorporated herein by reference.] 

1

 

Section 2.    The
[Borrower][New Pledgor] hereby agrees that the term ["Pledged
Shares"]["Membership Interests"]["Partnership Interests"] as used in the Pledge Agreement is hereby supplemented to include all of the
interests listed in the attached [Schedule 2.02(a)][Schedule 2.02(b)][Schedule 2.02(c)]. In furtherance of
the foregoing, as security for the payment and performance in full of the Secured Obligations, the [Borrower][New Pledgor] does hereby create and grant
to the Senior Agent, its successors and assigns, for the benefit of the Secured Parties, their successors and assigns, a continuing security interest in and lien on all of the
[Borrower's][New Pledgor's] right, title and interest in and to the Pledged Collateral (as defined in the Pledge Agreement and as supplemented and
amended hereby) of the [Borrower][New Pledgor]. [Each reference to a "Pledgor" in the Pledge Agreement shall be deemed to include the New
Pledgor.] The Pledge Agreement is hereby incorporated herein by reference.] 

Section 3.    The
[Borrower][New Pledgor] represents and warrants to the Senior Agent and the other Secured Parties that this
Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms (subject to applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless
of whether enforcement is sought in a proceeding in equity or at law)). 

Section 4.    This
Supplement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract.
This Supplement shall become effective when the Senior Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the
[Borrower][New Pledgor] and the Senior Agent. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective
as delivery of a manually signed counterpart of this Supplement. 

Section 5.    The
[Borrower][New Pledgor] hereby represents and warrants that (a) set forth on Schedules 2.02(a), 2.02(b), and
2.02(c) attached hereto are true and correct schedules of all its Membership Interests, Partnership Interests and Pledged Shares, as each term is defined in the Pledge Agreement, as supplemented
hereby, and (b) set forth on Schedule 3 attached hereto are its sole jurisdiction of formation, type of organization, its federal tax identification number and the organizational number,
and all names used by it during the last five years prior to the date of this Supplement. 

Section 6.    Except
as expressly supplemented hereby, the Pledge Agreement shall remain in full force and effect. 

Section 7.    THIS
SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION
OF THE SECURITY INTERESTS HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. 

Section 8.    In
case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be
required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions
contained herein and in the Pledge Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 

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Section 9.    All
communications and notices hereunder shall be in writing and given as provided in the Pledge Agreement. [All communications and notices hereunder to the
New Pledgor shall be given to it at the address set forth under its signature hereto]. 

Section 10.    The
[Borrower][New Pledgor] agrees to reimburse the Senior Agent for its reasonable
out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Senior Agent. 

        THIS SUPPLEMENT, THE PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

        THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.

[SIGNATURES
PAGES FOLLOW] 

3

 

        IN
WITNESS WHEREOF, the [Borrower][New Pledgor] and the Senior Agent have duly executed this Supplement to the Pledge Agreement as of the
day and year first above written. 

	 	 	[BORROWER][NEW PLEDGOR]:
	

 	
 	

[                                         
                                          
                 ]
	

 	
 	

By:	

    

	 	 	Name:	    

	 	 	Title:	    

	

 	
 	
SENIOR AGENT:
	

 	
 	

UNION BANK OF CALIFORNIA, N.A.
	

 	
 	

By:	

    

	 	 	Name:	    

	 	 	Title:	    

4

 
Schedules

Supplement No.           

to the Pledge Agreement 

        Pledged Collateral of the New Pledgor

        SCHEDULE 2.02(a)

	Issuer
 
	 	Type of Membership Interest
	 	% of Membership Interest Owned

	    	 	 	 	 

        SCHEDULE 2.02(b)

	Issue
 
	 	Type of Partnership Interest
	 	% of Partnership Interest Owned

	    	 	 	 	 

        SCHEDULE 2.02(c)

	Issuer
 
	 	Type of Shares
	 	Number of Shares
	 	% of Shares Owned
	 	Certificate No.

	    	 	 	 	 	 	 	 	 

SCHEDULE
3 

	New Pledgor:	 	

	

Sole Jurisdiction of Formation/Filing:	
 	

	

Type of Organization:	
 	

	

Organizational Number:	
 	

	

Federal Tax Identification Number:	
 	

	

Prior Names:	
 	

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QuickLinks

FIRST AMENDMENT TO PLEDGE AGREEMENT

INTRODUCTION

RECITALS

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