Document:

Exhibit 4.2

 

AMENDMENT NO. ONE

TO THE

REGISTRATION RIGHTS AGREEMENT

 

THIS AMENDMENT NO. ONE, effective November 29, 2005, to the
Registration Rights Agreement (the “Rights Agreement”) dated November
29, 2005, is by and among Cano Petroleum, Inc., a Delaware corporation (the “Company”)
and Scott White (“Purchaser”).

 

W I T N E S S
E T H:

 

WHEREAS, the Company and Purchaser previously entered into the Rights
Agreement, pursuant to which the Company agreed to provide Purchaser with
certain registration rights under the Securities Act of 1933, as amended, and
under applicable state securities laws for 895,660 shares of the Company’s
common stock; and

 

WHEREAS, the Company and Purchaser desire to amend the Rights Agreement
to modify the terms regarding certain registration rights and the Purchase
Option, as defined in the Rights Agreement.

 

NOW, THEREFORE, in consideration of the foregoing and all other good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the Company and Purchaser agree as follows:

 

1.             Paragraphs 2(a) and
(b) are hereby amended by striking said paragraphs and substituting in lieu
thereof the following:

 

If at any time before the Registrable Securities are eligible for
resale pursuant to the provisions of Rule 144(k) (the “Registration Period”),
the Company shall determine to register any of its equity securities, either
for its own account or for the account of a security holder or holders, other
than a registration statement relating solely to employee benefit plans or a
registration statement relating solely to a Rule 145 transaction or other
merger transaction or a registration on any registration form which does not
permit secondary sales of common stock or does not include substantially the
same information as would be required to be included in a registration
statement covering the resale of Registrable Securities, the Company will
include in such registration statement, and in any underwriting involved
therein, all of the Registrable Securities.

 

2.             The parties hereby
confirm that, except to the extent specifically amended hereby, the provisions
of the Rights Agreement shall remain unmodified and the Rights Agreement as so
amended is hereby confirmed as being in full force and effect.

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
One to the Registration Rights Agreement to be executed by the undersigned as
of this 13th day of May, 2006.

 

	
   

  	
   

  
	
   

  	
  /s/ Scott White

  	
   

  
	
   

  	
  SCOTT WHITE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CANO PETROLEUM, INC.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  
	
   

  	
  Name: S. Jeffrey Johnson

  
	
   

  	
  Title: Chairman and CEOExhibit
10.1

 

AMENDMENT NO. 3

 

This AMENDMENT NO. 3 (“Agreement”)
entered into on May 12, 2006 but made effective as of March 31, 2006 (“Effective
Date”) is among Cano Petroleum, Inc., a Delaware corporation (“Borrower”), the
Guarantors (as defined below), the Lenders (as defined below), and Union Bank
of California, N.A., as administrative agent for such Lenders (in such
capacity, the “Administrative Agent”) and as issuing lender (in such capacity,
the “Issuing Lender”).

 

RECITALS

 

A.            The Borrower is party to
that certain Credit Agreement dated as of November 29, 2005, as amended by the
Amendment No. 1 dated as of February 24, 2006, and as amended by the Amendment
No. 2, Assignment and Agreement dated as of April 28, 2006 (as so amended, the “Credit
Agreement”) among the Borrower, the lenders party thereto from time to time
(the “Lenders”), the Administrative Agent, and the Issuing Lender.

 

B.            The Borrower, the Lenders and the
Administrative Agent wish to, subject to the terms and conditions of this
Agreement make certain other amendments to the Credit Agreement as provided
herein.

 

THEREFORE,
the Borrower, the Guarantors, the Lenders, and the Administrative Agent hereby
agree as follows:

 

Section 1.              Defined
Terms. 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.

 

Section 2.              Other
Definitional Provisions. Article, Section, Schedule,
and Exhibit references are to Articles and Sections of and Schedules and
Exhibits to this 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 Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. The term “including” means “including,
without limitation,”. Paragraph headings have been inserted in this Agreement
as a matter of convenience for reference only and it is agreed that such
paragraph headings are not a part of this Agreement and shall not be used in
the interpretation of any provision of this Agreement.

 

 

Section 3.              Amendments
to Credit Agreement.

 

(a)           Section 6.18
of the Credit Agreement is deleted in its entirety and replaced with the
following:

 

Section 6.18         Debt Coverage Ratio.
The Borrower (a) shall not permit the ratio of, as of the fiscal quarter ending
March 31, 2006, (i) the consolidated Debt of the Borrower as of such fiscal
quarter end to (ii) the consolidated EBITDA of the Borrower for the fiscal
quarter period then ended multiplied by four, to be greater than 7.50  to 1.00; (b) shall not permit the ratio of,
as of the fiscal quarter ending June 30, 2006, (i) the consolidated Debt of the
Borrower as of such fiscal quarter end to (ii) the consolidated EBITDA of the
Borrower for the two fiscal quarter period then ended multiplied by two, to be
greater than 5.25 to 1.00; (c) shall not permit the ratio of, as of the fiscal
quarter ending September 30, 2006, (i) the consolidated Debt of the Borrower as
of such fiscal quarter end to (ii) the consolidated EBITDA of the Borrower for
the three fiscal quarter period then ended multiplied by 4/3, to be greater
than 4.50 to 1.00; (d) shall not permit the ratio of, as of each fiscal quarter
ending on December 31, 2006, (i) the consolidated Debt of the Borrower as of
such fiscal quarter end to (ii) the consolidated EBITDA of the Borrower for the
four fiscal quarter period then ended, to be greater than 4.00 to 1.00.; and
(e) shall not permit the ratio of, as of each fiscal quarter ending on or after
March 31, 2007, (i) the consolidated Debt of the Borrower as of such fiscal
quarter end to (ii) the consolidated EBITDA of the Borrower for the four fiscal
quarter period then ended, to be greater than 3.50 to 1.00.

 

(b)           Section 6.19 of
the Credit Agreement is deleted in its entirety and replaced with the
following:

 

Section 6.19         Interest Coverage Ratio. The Borrower (a) shall not permit the ratio of, as of the fiscal
quarter ending March 31, 2006, (i) the consolidated EBITDA of the Borrower for
the fiscal quarter period then ended multiplied by four, to (ii) the consolidated
Interest Expense of the Borrower for the fiscal quarter period then ended
multiplied by four, to be less than 1.50 to 1.00; (b) shall not permit the
ratio of, as of the fiscal quarter ending June 30, 2006, (i) the consolidated
EBITDA of the Borrower for the two fiscal quarter period then ended multiplied
by two, to (ii) the consolidated Interest Expense of the Borrower for the two
fiscal quarter period then ended multiplied by two, to be less than 1.75 to
1.00; (c) shall not permit the ratio of, as of the fiscal quarter ending
September 30, 2006, (i) the consolidated EBITDA of the Borrower for the three
fiscal quarter period then ended multiplied by 4/3, to (ii) the consolidated
Interest Expense of the Borrower for the three fiscal quarter period then ended
multiplied by 4/3, to be less than 2.00 to 1.00; and (d) shall not permit the
ratio of, as of the end of any fiscal quarter ending on or after December 31,
2006, (i) the consolidated EBITDA of the Borrower calculated for the four
fiscal quarters then ended, to (ii) the consolidated Interest Expense of the
Borrower for the four fiscal quarters then ended, to be less than 2.00 to 1.00.

 

Section 4.              Consent
to Amendment Terms of the Subordinated Debt. As required under Section
6.20 of the Credit Agreement, the Lenders hereby consent to the terms of the Second
Amendment to Subordinated Credit Agreement entered into on May 12, 2006 but
made effective as of March 31, 2006 an execution version of which is attached
hereto as Exhibit A.

 

2

 

Section 5.              Borrower Representations and Warranties. The Borrower
represents and warrants that: (a) after giving effect to this Agreement, the
representations and warranties contained in the Credit Agreement and the
representations and warranties contained in the other Loan Documents are true
and correct in all material respects on and as of the Effective Date as if made
on as and as of such date except to the extent that any such representation or warranty expressly
relates solely to an earlier date, in which case such representation or
warranty is true and correct in all material respects as of such earlier date; (b) after
giving effect to this Agreement, 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
and governing action and proceedings; (d) this Agreement constitutes the 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 6.              Guarantors Representations and Warranties. Each
Guarantor represents and warrants that: (a) after giving effect to this
Agreement, the representations and warranties contained in the Guaranty and the
representations and warranties contained in the other Loan Documents are true
and correct in all material respects on and as of the Effective Date as if made
on as and as of such date except to the extent that any such representation or warranty expressly
relates solely to an earlier date, in which case such representation or
warranty is true and correct in all material respects as of such earlier date; (b) after
giving effect to this Agreement, no Default has occurred and is continuing; (c)
the execution, delivery and performance of this Agreement are within the
corporate, limited liability company, or partnership power and authority of
such Guarantor and have been duly authorized by appropriate corporate, limited
liability company, or partnership action and proceedings; (d) this Agreement
constitutes the legal, valid, and binding obligation of such Guarantor
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; (f) it has no defenses to the enforcement of
the Guaranty; and (g) the Liens under the Security Instruments are valid and
subsisting and secure such Guarantor’s and the Borrower’s obligations under the
Loan Documents.

 

Section 7.              Conditions to Effectiveness. This Agreement and
the amendments to the Credit Agreement provided herein shall become effective
on the Effective Date and enforceable against the parties hereto 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.

 

3

 

(b)           The
representations and warranties in this Agreement shall be true and correct in
all material respects.

 

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

 

Section 8.              Acknowledgments and Agreements.

 

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

 

(b)           The
Administrative Agent and the Lenders hereby expressly reserve all of their
rights, remedies, and claims under the Loan Documents. Nothing in this
Agreement shall constitute a waiver or relinquishment of (i) any Default or
Event of Default under any of the Loan Documents, (ii) any of the agreements,
terms or conditions contained in any of the Loan Documents, (iii) any rights or
remedies of the Administrative Agent or any Lender with respect to the Loan
Documents, or (iv) the rights of the Administrative Agent or any Lender to
collect the full amounts owing to them under the Loan Documents.

 

(c)           Each of the
Borrower, the Guarantors, Administrative Agent, 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, is and remains in full
force and effect, and the Borrower and the Guarantors acknowledge and agree
that their respective liabilities and obligations 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 to the Credit Agreement and the Loan
Documents shall mean such Credit Agreement and such Loan Documents as amended
by this Agreement.

 

(e)           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.

 

Section 9.              Reaffirmation of the Guaranty. Each Guarantor hereby
ratifies, confirms, acknowledges and agrees that its obligations under the 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 the Guaranty), as such Guaranteed
Obligations may have been amended by this Agreement, and its execution and
delivery of this Agreement does not indicate or establish an approval or
consent requirement by such Guarantor under the Guaranty in connection with the
execution and delivery of amendments, consents or waivers to the Credit
Agreement, the Notes or any of the other Loan Documents.

 

Section 10.            Counterparts. 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

 

4

 

single instrument. This
Agreement may be executed by facsimile signature and all such signatures shall
be effective as originals.

 

Section 11.            Successors
and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted pursuant to the Credit Agreement.

 

Section 12.            Invalidity. 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.

 

Section 13.            Governing
Law. 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.

 

Section 14.            Entire
Agreement. 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.

 

[SIGNATURES BEGIN ON NEXT PAGE]

 

5

 

EXECUTED
effective as of the date first above written.

 

	
  BORROWER:

  	
  CANO
  PETROLEUM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  
	
   

  	
  S. Jeffrey Johnson

  
	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
  GUARANTORS:

  	
  SQUARE
  ONE ENERGY, INC.

  
	
   

  	
  LADDER
  COMPANIES, INC.

  
	
   

  	
  W.O.
  ENERGY OF NEVADA, INC.

  
	
   

  	
  WO
  ENERGY, INC.

  
	
   

  	
  PANTWIST,
  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  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

  
					

 

Signature Page to
Amendment No. 3

 

 

	
  ADMINISTRATIVE AGENT/

  	
   

  
	
  ISSUING LENDER:

  	
  UNION
  BANK OF CALIFORNIA, N.A.,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kimberly Coil

  
	
   

  	
  Kimberly Coil

  
	
   

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  UNION
  BANK OF CALIFORNIA, N.A.,

  
	
   

  	
  as
  a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kimberly Coil

  
	
   

  	
  Kimberly Coil

  
	
   

  	
  Vice President

  
				

 

 

	
   

  	
  NATEXIS
  BANQUES POPULAIRES

  
	
   

  	
  as
  a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Donovan C. Broussard

  
	
   

  	
  Name:

  	
  Donovan
  C. Broussard

  
	
   

  	
  Title:

  	
  Vice
  President and Group Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Louis P. Laville, III

  
	
   

  	
  Name:

  	
  Louis
  P. Laville, III

  
	
   

  	
  Title:

  	
  Vice
  President and Group Manager

  
						

 

 

Exhibit A

 

SECOND AMENDMENT TO SUBORDINATED CREDIT AGREEMENT

 

This SECOND AMENDMENT TO
SUBORDINATED CREDIT AGREEMENT (this “Agreement”) entered into on May 12, 2006
but made effective as of March 31, 2006 (“Effective Date”) is among Cano
Petroleum, Inc., a Delaware corporation (“Borrower”), the Guarantors (as
defined in accordance with Section 1 below), the Lenders (as defined below),
and Energy Components SPC EEP Energy Exploration and Production Segregated Portfolio,
a Cayman Islands company, as administrative agent for such Lenders (in such
capacity, the “Administrative Agent”).

 

RECITALS

 

C.            The Borrower is party to
that certain Subordinated Credit Agreement dated as of November 29, 2005, as
amended by the First Amendment to Subordinated Credit Agreement dated as of
April 28, 2006 (as so amended, the “Credit Agreement”) among the Borrower, the
lenders party thereto from time to time (the “Lenders”), and the Administrative
Agent.

 

D.            The Borrower, the Lenders and the
Administrative Agent wish to, subject to the terms and conditions of this
Agreement, make certain other amendments to the Credit Agreement as provided
herein.

 

THEREFORE,
the Borrower, the Guarantors, the Lenders, and the Administrative Agent hereby agree
as follows:

 

Section 15.            Defined
Terms. 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.

 

Section 16.            Other
Definitional Provisions. Article, Section, Schedule,
and Exhibit references are to Articles and Sections of and Schedules and
Exhibits to this 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 Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. The term “including” means “including,
without limitation,”. Paragraph headings have been inserted in this Agreement
as a matter of convenience for reference only and it is agreed that such
paragraph headings are not a part of this Agreement and shall not be used in
the interpretation of any provision of this Agreement.

 

1

 

Section 17.            Amendments to Credit Agreement.

 

(f)            Section 6.18 of
the Credit Agreement is deleted in its entirety and replaced with the
following:

 

Section 6.18         Debt Coverage Ratio.
The Borrower (a) shall not permit the ratio of, as of the fiscal quarter ending
March 31, 2006, (i) the consolidated Debt of the Borrower as of such fiscal
quarter end to (ii) the consolidated EBITDA of the Borrower for the fiscal
quarter period then ended multiplied by four, to be greater than 7.50  to 1.00; (b) shall not permit the ratio of,
as of the fiscal quarter ending June 30, 2006, (i) the consolidated Debt of the
Borrower as of such fiscal quarter end to (ii) the consolidated EBITDA of the
Borrower for the two fiscal quarter period then ended multiplied by two, to be
greater than 5.25 to 1.00; (c) shall not permit the ratio of, as of the fiscal
quarter ending September 30, 2006, (i) the consolidated Debt of the Borrower as
of such fiscal quarter end to (ii) the consolidated EBITDA of the Borrower for
the three fiscal quarter period then ended multiplied by 4/3, to be greater
than 4.50 to 1.00; and (d) shall not permit the ratio of, as of each fiscal
quarter ending on or after December 31, 2006, (i) the consolidated Debt of the
Borrower as of such fiscal quarter end to (ii) the consolidated EBITDA of the
Borrower for the four fiscal quarter period then ended, to be greater than 4.00
to 1.00.

 

(g)           Section 6.19 of
the Credit Agreement is deleted in its entirety and replaced with the
following:

 

Section 6.19         Interest Coverage Ratio. The Borrower (a) shall not permit the ratio of, as of the fiscal
quarter ending March 31, 2006, (i) the consolidated EBITDA of the Borrower for
the fiscal quarter period then ended multiplied by four, to (ii) the
consolidated Interest Expense of the Borrower for the fiscal quarter period
then ended multiplied by four, to be less than 1.50 to 1.00; (b) shall not permit
the ratio of, as of the fiscal quarter ending June 30, 2006, (i) the
consolidated EBITDA of the Borrower for the two fiscal quarter period then
ended multiplied by two, to (ii) the consolidated Interest Expense of the
Borrower for the two fiscal quarter period then ended multiplied by two, to be
less than 1.75 to 1.00; (c) shall not permit the ratio of, as of the fiscal
quarter ending September 30, 2006, (i) the consolidated EBITDA of the Borrower
for the three fiscal quarter period then ended multiplied by 4/3, to (ii) the
consolidated Interest Expense of the Borrower for the three fiscal quarter
period then ended multiplied by 4/3, to be less than 2.00 to 1.00; and (d)
shall not permit the ratio of, as of the end of any fiscal quarter ending on or
after December 31, 2006, (i) the consolidated EBITDA of the Borrower calculated
for the four fiscal quarters then ended, to (ii) the consolidated Interest
Expense of the Borrower for the four fiscal quarters then ended, to be less
than 2.00 to 1.00.

 

Section 18.            Borrower Representations and Warranties. The Borrower
represents and warrants that: (a) after giving effect to this Agreement, the
representations and warranties contained in the Credit Agreement and the
representations and warranties contained in the other

 

2

 

Loan Documents are true and
correct in all material respects on and as of the Effective Date as if made on
as and as of such date except
to the extent that any such representation or warranty expressly relates solely
to an earlier date, in which case such representation or warranty is true and
correct in all material respects as of such earlier date; (b) after
giving effect to this Agreement, 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 and governing action and proceedings; (d) this Agreement constitutes
the 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 19.            Guarantors Representations and Warranties. Each
Guarantor represents and warrants that: (a) after giving effect to this
Agreement, the representations and warranties contained in the Guaranty and the
representations and warranties contained in the other Loan Documents are true
and correct in all material respects on and as of the Effective Date as if made
on as and as of such date except to the extent that any such representation or warranty expressly
relates solely to an earlier date, in which case such representation or
warranty is true and correct in all material respects as of such earlier date; (b) after
giving effect to this Agreement, no Default has occurred and is continuing; (c)
the execution, delivery and performance of this Agreement are within the
corporate, limited liability company, or partnership power and authority of
such Guarantor and have been duly authorized by appropriate corporate, limited
liability company, or partnership action and proceedings; (d) this Agreement
constitutes the legal, valid, and binding obligation of such Guarantor
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; (f) it has no defenses to the enforcement of
the Guaranty; and (g) the Liens under the Security Instruments are valid and
subsisting and secure such Guarantor’s and the Borrower’s obligations under the
Loan Documents.

 

Section 20.            Conditions to Effectiveness. This Agreement
and the amendments to the Credit Agreement provided herein shall become
effective on the Effective Date and enforceable against the parties hereto 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)           The
representations and warranties in this Agreement shall be true and correct in
all material respects.

 

3

 

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

 

Section 21.            Acknowledgments and Agreements.

 

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

 

(e)           The
Administrative Agent and the Lenders hereby expressly reserve all of their
rights, remedies, and claims under the Loan Documents. Nothing in this
Agreement shall constitute a waiver or relinquishment of (i) any Default or
Event of Default under any of the Loan Documents, (ii) any of the agreements,
terms or conditions contained in any of the Loan Documents, (iii) any rights or
remedies of the Administrative Agent or any Lender with respect to the Loan
Documents, or (iv) the rights of the Administrative Agent or any Lender to
collect the full amounts owing to them under the Loan Documents.

 

(f)            Each of the
Borrower, the Guarantors, Administrative Agent, 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, is and remains in full
force and effect, and the Borrower and the Guarantors acknowledge and agree
that their respective liabilities and obligations under the Credit Agreement,
as amended hereby, and the Guaranty, are not impaired in any respect by this
Agreement.

 

(g)           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.

 

(h)           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.

 

Section 22.            Reaffirmation of the Guaranty. Each Guarantor hereby
ratifies, confirms, acknowledges and agrees that its obligations under the
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 the Guaranty), as such Guaranteed
Obligations may have been amended by this Agreement, and its execution and
delivery of this Agreement does not indicate or establish an approval or
consent requirement by such Guarantor under the Guaranty in connection with the
execution and delivery of amendments, consents or waivers to the Credit
Agreement, the Notes or any of the other Loan Documents.

 

Section 23.            Counterparts. 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.

 

4

 

Section 24.            Successors
and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted pursuant to the Credit Agreement.

 

Section 25.            Invalidity. 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.

 

Section 26.            Governing
Law. 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.

 

Section 27.            Entire
Agreement. 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.

 

[SIGNATURES BEGIN ON NEXT PAGE]

 

5

 

EXECUTED
effective as of the date first above written.

 

	
  BORROWER:

  	
  CANO
  PETROLEUM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  
	
   

  	
  S. Jeffrey Johnson

  
	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
  GUARANTORS:

  	
  SQUARE
  ONE ENERGY, INC.

  
	
   

  	
  LADDER
  COMPANIES, INC.

  
	
   

  	
  W.O.
  ENERGY OF NEVADA, INC.

  
	
   

  	
  WO
  ENERGY, INC.

  
	
   

  	
  PANTWIST,
  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  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

  
					

 

2

 

	
  LENDER
  AND

  	
   

  
	
  ADMINISTRATIVE
  AGENT:

  	
  ENERGY
  COMPONENTS SPC EEP ENERGY

  EXPLORATION AND PRODUCTION

  SEGREGATED PORTFOLIO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Mark Margason

  
	
   

  	
  Authorized Signer

  

 

3

 

	
  LENDER:

  	
  UNIONBANCAL
  EQUITIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Michael A. Ross

  
	
   

  	
  Vice President

  

 

4

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