Document:

EXHIBIT 10.2

 

CONSENT AND FORBEARANCE AGREEMENT

 

This
CONSENT AND FORBEARANCE AGREEMENT (the “Agreement”) dated effective as
of August 5, 2010 (“Effective Date”) is by and among Cano Petroleum, Inc.,
a Delaware corporation (the “Borrower”), the Guarantors (as defined
below), the Lenders (as defined below), and UnionBanCal Equities, Inc., as
administrative agent (in such capacity, the “Administrative Agent”) for
the Lenders.

 

RECITALS

 

A.            The Borrower is party to that
certain Subordinated Credit Agreement dated as of December 17, 2008 among
the Borrower, the Administrative Agent, and the financial institutions party
thereto from time to time, as lenders (the “Lenders”), as amended by (i) that
certain Amendment No. 1 and Agreement dated as of December 30, 2009,
and (ii) that certain Amendment No. 2 and Agreement dated as of March 30,
2010 (the “Amendment No. 2”) (as so amended, the “Subordinated
Credit Agreement”).

 

B.            Subject to the terms and conditions
set forth herein, the parties hereto wish to (i) acknowledge the existence
of certain Events of Default (as defined in the Subordinated Credit Agreement)
and certain potential Events of Default, (ii) provide a temporary
forbearance period during which the Administrative Agent and the Lenders agree
not to take any remedial action with respect to such Events of Default, and (iii) agree
to certain other terms as set forth herein.

 

NOW
THEREFORE, in consideration of the premises and the mutual covenants,
representations and warranties contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto 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 Subordinated Credit
Agreement and used herein without definition shall have the meaning assigned to
such term in the Subordinated 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.  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.               Consent
to Termination Hedges. 
The Borrower wishes to terminate certain Hedge Contracts listed on
Schedule 4.20 of the Subordinated Credit Agreement (“Subject Hedge Contracts”)
which termination would be prohibited under Section 5.12 of the
Subordinated Credit Agreement.  The
Administrative Agent and the Lenders hereby consent to the termination of the
Subject Hedge Contracts which are listed and described on Schedule 1 attached
hereto.  The express consent set forth in
this Section 3 is limited to the Subject Hedge Contracts to the extent,
and only to the extent, such Hedge Contracts are listed and described on
Schedule 1 attached hereto, and shall not be construed to be a consent to or a
permanent waiver of any terms, provisions, covenants, warranties or agreements
contained 

 

 

in the Subordinated Credit Agreement or in any of
the other Loan Documents, unless expressly provided so herein.  The Administrative Agent and the Lenders
reserve the right to exercise any rights and remedies available to them in connection
with any present or future defaults with respect to the Subordinated Credit
Agreement or any other provision of any Loan Document.

 

Section 4.               Forbearance.

 

(a)           The Borrowers hereby acknowledge the existence of the
Events of Default resulting from the following (collectively, the “Existing
Defaults”): (i) the Borrower’s failure to pay the amendment fee (the “Amendment
No. 2 Amendment Fee”) as provided in Section 3 of Amendment No. 2,
(ii) the Borrower’s failure to provide an Internal Engineering Report and
accompanying officer’s certificate on or before March 31, 2010 as required
under Section 5.06(c), (iii) the Borrower’s failure to pay the
amendment fee required under Section 3 of that certain Amendment No. 2
and Agreement dated as of March 30, 2010 which amended the Senior Credit
Agreement, and (iv) the Borrower’s failure to provide an Internal
Engineering Report and accompanying officer’s certificate on or before March 31,
2010 as required under Section 2.02(b)(ii) and Section 5.06(c) of
the Senior Credit Agreement.

 

(b)           The Borrowers hereby acknowledge that the following events
may be determined to have occurred which, upon occurrence thereof, would result
in the occurrence of Events of Default, either directly or as a result of the
cross-default provision in Section 7.01(d) of the Subordinated Credit
Agreement (collectively, the “Potential Defaults,” and together with the
Existing Defaults, the “Designated Defaults”): (i) the Borrower may
have failed to comply with Section 6.05 of the Subordinated Credit
Agreement as a result of making of Restricted Payments with respect to the Series D
Preferred Shares on June 29, 2010 and June 30, 2010, (ii) the
Borrower may have failed to comply with the Leverage Ratio requirement under Section 6.18
of the Subordinated Credit Agreement for the Fiscal Quarter ended June 30,
2010, (iii) the Borrower may have failed to comply with the Interest
Coverage Ratio requirement under Section 6.19 of the Subordinated Credit
Agreement for the Fiscal Quarter ended June 30, 2010, (iv) the
Borrower may fail, and may have failed, to comply with the minimum asset
coverage ratio requirement under Section 6.23 of the Subordinated Credit
Agreement, (v) the Borrower may have failed to comply with the Leverage
Ratio requirement under Section 6.18 of the Senior Credit Agreement for
the Fiscal Quarter ended June 30, 2010, (vi) the Borrower may have
failed to comply with the Interest Coverage Ratio requirement under Section 6.19
of the Senior Credit Agreement for the Fiscal Quarter ended June 30, 2010,
(vii) the Borrower may fail to pay interest on the unpaid principal amount
of each Advance on September 30, 2010, as required under Section 2.09
of the Subordinated Credit Agreement, as a result of the delivery of a Senior
Default Notice as defined in, and pursuant to, the Subordination and
Intercreditor Agreement, (viii) the Borrower may fail to comply with the
Current Ratio requirement under Section 6.17 of the Subordinated Credit
Agreement for the Fiscal Quarter ending September 30, 2010, (ix) the
Borrower may fail to comply with the Leverage Ratio requirement under Section 6.18
of the Subordinated Credit Agreement for the Fiscal Quarter ending September 30,
2010, (x) the Borrower may fail to comply with the Interest Coverage Ratio
requirement under Section 6.19 of the Subordinated Credit Agreement for
the Fiscal Quarter ending September 30, 2010, (xi) the Borrower
may fail to comply with the Current Ratio requirement under Section 6.17
of the Senior Credit Agreement for the Fiscal Quarter ending September 30,
2010, (xii) the Borrower may fail to comply with the Leverage Ratio
requirement under Section 6.18 of the Senior Credit Agreement for the
Fiscal Quarter ending September 30, 2010, and (xiii) the Borrower may
fail to comply with the Interest Coverage Ratio requirement under Section 6.19
of the Senior Credit Agreement for the Fiscal Quarter ending September 30,
2010.

 

(c)           The Lenders hereby agree, subject to the terms of this
Agreement, to forbear from exercising any of the following rights and remedies
arising solely as a result of the Designated Defaults: (i) rights to
accelerate payments (other than the automatic acceleration that would occur
under 

 

2

 

Section 7.03 of the Subordinated Credit
Agreement), (ii) rights to enforce security interests (other than after
the occurrence of an automatic acceleration under Section 7.03 of the
Subordinated Credit Agreement), and (iii) rights to file an involuntary
bankruptcy petition against the Borrower or any of its Subsidiaries until the
date (the “Forbearance Termination Date”) that is the earlier to occur
of (A) October 29, 2010, and (B) the date of the occurrence of
any Forbearance Event (as defined below).

 

(d)           The forbearance by the Lenders described above is
contingent upon the satisfaction of the conditions precedent set forth below
and is limited to the Designated Defaults. 
This forbearance is limited to the extent described herein and shall not
be construed to be a consent to or a permanent waiver of the Designated
Defaults or any other terms, provisions, covenants, warranties or agreements
contained in the Subordinated Credit Agreement or in any of the other Loan
Documents.  The Lenders reserve (i) the
right to exercise any rights and remedies available to the them in connection
with such Designated Defaults on and after the Forbearance Termination Date and
(ii) the right to exercise any rights and remedies available to them in
connection with any other present or future Defaults with respect to the
Subordinated Credit Agreement or any other provision of any Loan Document.

 

(e)           The Borrower and each Guarantor (collectively, the “Obligors”
and individually, an “Obligor”) hereby further agree and acknowledge that (i) the
Designated Defaults have not been permanently waived as a result of this
Agreement and that such forbearance is temporary in nature, and (ii) from
and after the Forbearance Termination Date, all rights and remedies of the
Lenders enjoined as a result of this Section 4 shall be reinstated.

 

(f)            The descriptions herein of the Designated Defaults are
based upon the information provided to the Lenders on or prior to the date
hereof and shall not be deemed to exclude the existence of any other Defaults
or Events of Default.  The failure of the
Lenders to give notice to the Obligors of any such other Defaults or Events of
Default is not intended to be nor shall be a waiver thereof.  Each Obligor hereby agrees and acknowledges
that the Lenders require and will require strict performance by the Borrower of
all of its obligations, agreements and covenants contained in the Subordinated
Credit Agreement and the other Loan Documents, and no inaction or action
regarding any Default or Event of Default is intended to be or shall be a
waiver thereof.

 

(g)           Any of the following shall constitute a “Forbearance
Event” under this Agreement:

 

(i)            except for the Designated Defaults,
the failure of any Obligor to comply with any covenant or agreement contained
in this Agreement, the Subordinated Credit Agreement or any other Loan
Document;

 

(ii)           any representation or warranty
contained in this Agreement shall be incorrect in any material respect;

 

(iii)          except for the delivery of a Senior
Default Notice as defined in, and pursuant to, the Subordination and Intercreditor
Agreement, the exercise by any Senior Lender or the Senior Administrative Agent
of any right or remedy available to them in connection with any Designated
Default or any other default under the Senior Credit Agreement or any other
Senior Loan Document, including, but not limited to (A) any foreclosure or
enforcement action against any collateral and (B) acceleration of
indebtedness under the Senior Credit Agreement;

 

(iv)          the commencement of any bankruptcy,
reorganization, debt arrangement or other case or proceeding under any
applicable bankruptcy or insolvency law or any dissolution, winding up or
liquidation proceeding, in any event, commenced by the Borrower or any other
Obligor, or commenced against the Borrower or any other Obligor by any Person;

 

3

 

(v)           the occurrence or existence of any
Default (other than the Designated Defaults);

 

(vi)          any indirect or direct cash payment,
cash dividend or cash distribution of any kind or character under or in
connection with the Certificate of Designation;

 

(vii)         the Borrower’s failure to establish, on
or before 5:00 p.m. Houston, Texas time on August 10, 2010, a
functional electronic data room with pertinent information available to Persons
that may be interested in an asset purchase, merger, combination, refinancing,
recapitalization, or other similar transaction (a “Prospective Transaction”);

 

(viii)        the Borrower’s failure to deliver to the
Administrative Agent, on or before 5:00 p.m. Houston, Texas time on September 15,
2010, a fully executed letter of intent (the “Letter of Intent”) which
evidences the parties intent for either (A) a merger or combination with
the Borrower, or any and all of its Subsidiaries, as part of a Prospective
Transaction that will result in the repayment of the Obligations in full in
immediately available funds on or before October 29, 2010 and otherwise
containing terms and conditions (including, without limitation, releases)
reasonably acceptable to the Administrative Agent and the Lenders, or (B) a
purchase and sale with a buyer or group of buyers reasonably acceptable to the
Administrative Agent and the Lenders providing for a sale transaction by the
Borrower or any of its Subsidiaries that results in the repayment of the Obligations
in full in immediately available funds on or before October 29, 2010, and
otherwise containing terms and conditions (including, without limitation,
releases) reasonably acceptable to the Administrative Agent and the Lenders,
(in any event, such transaction being the “Definitive Transaction”);

 

(xi)           the Borrower’s failure to deliver to
the Administrative Agent, on or before 5:00 p.m. Houston, Texas time on September 30,
2010, fully executed definitive documentation providing for the Definitive
Transaction that results in the repayment of the Obligations in full in
immediately available funds on or before the October 29, 2010, and
otherwise containing terms and conditions (including, without limitation,
releases) reasonably acceptable to the Administrative Agent and the Lenders
(the “Transaction Agreement”);

 

(x)            the Borrower’s failure to consummate
the Definitive Transaction pursuant to the Transaction Agreement by 5:00 p.m.
Houston, Texas time on or prior to October 29, 2010; or

 

(xi)           any “Forbearance Event” as defined in
the Senior Forbearance Agreement referred to in Section 8 below occurs or
such Senior Forbearance Agreement or the forbearance by the Senior Lenders
provided therein terminates or otherwise ceases to be in effect for any reason.

 

Section 5.               Certain
Covenants.  In
consideration of the agreements set herein, including those set forth in Section 3
and Section 4 above, the Borrower and its Subsidiaries agree that:

 

(a)           Retention of Advisor.  In the event the Administrative Agent, either
directly or through its counsel, retains and employs any financial advisor
(such financial advisor, or any successor or replacement thereof, the “Financial
Advisor”), the Borrower shall (i) cooperate (and cause its
Subsidiaries to cooperate) in all reasonable respects with the Financial
Advisor and promptly provide to the Financial Advisor such information
regarding the operations, business affairs, assets and financial condition of
the Borrower and its Subsidiaries as reasonably requested by the Financial Advisor,
(ii) permit the Financial Advisor to discuss such operations, business
affairs, assets and financial condition with the officers and directors of the
Borrower and its Subsidiaries and make such officers and directors available to
the Financial Advisor for such purpose as may be reasonably requested and
during normal business hours, and (iii) pay all costs and expenses of the
Financial Advisor in accordance with Section 9.04 of the Subordinated
Credit Agreement.

 

4

 

(b)           Additional Collateral.  On or before September 3, 2010, the
Obligors shall have executed and delivered Mortgages in favor of the
Administrative Agent granting an Acceptable Security Interest in and to all
properties, rights, titles, interests and estates in which the Administrative
Agent has not already been granted an Acceptable Security Interest, including,
without limitation, those properties more particularly described on Exhibit A.

 

(c)           Additional Reporting.  In addition to the reporting requirements set
forth in the Subordinated Credit Agreement, the Borrower agrees to deliver to
the Administrative Agent, on or before the last Business Day of each calendar
week, in form and detail reasonably satisfactory to the Administrative Agent, the
following:

 

(1)           a visitation schedule, log book, or other such written
report that shall include, without limitation, the names of all the parties
visiting the data room or scheduled to visit the data room and the date of each
such visit or scheduled visit; and

 

(2)           a continuously updated written report or chart, providing,
(i) the names of each party that has made any material offers, initiated
discussions, visited the data room or engaged in any other material
correspondence with the Borrower regarding any Prospective Transaction, (ii) the
basic terms and subject matter of any offers, letters of intent or material
correspondence received since the date of the last report, and (iii) the
current status of such information and the estimated interest level of each of
the parties involved.

 

All
of the information received pursuant to this Section 5(c) (other than
any such information that is available to the Administrative Agent or any
Lender on a nonconfidential basis prior to disclosure by the Borrower or any of
its Subsidiaries) shall be maintained by the Administrative Agent and the
Lenders as confidential, except that such information may be disclosed to (a) any
other Lender, any Affiliate of a Lender and to any of the foregoing’s
respective partners, directors, officers, employees, agents, advisors and other
representatives (collectively, the “Representatives”) who, under the
circumstances, reasonably need to know such information, or to whom such
disclosure is appropriate; provided that, the Administrative Agent and each
Lender shall use reasonable efforts to cause its respective Representatives not
to disclose any such information; (b) to the extent requested by any
regulatory authority purporting to have jurisdiction over it (including any
self-regulatory authority, such as the National Association of Insurance
Commissioners); (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process; (d) subject to
clause (a) above, in connection with the exercise of remedies hereunder or
under any other Loan Document or the enforcement of rights hereunder or
thereunder; (e) with the consent of the Borrower; or (f) to the
extent such information (x) becomes publicly available other than as a
result of a breach of this Section, or (y) becomes publicly available to
the Administrative Agent, any Lender, or any of their respective Affiliates on
a nonconfidential basis from a source other than the Borrower.

 

(d)           Fees.  In
consideration of the forbearance and agreements by the Lender granted
hereunder, on the earlier of (i) the date the Borrower or any of its
Subsidiaries receives any proceeds from the sale of any Properties and (ii) the
Forbearance Termination Date (as extended by Lenders in their sole discretion),
the Borrower agrees to pay to the Administrative Agent for the pro rata account
of the Lenders (A) a forbearance fee in an amount equal to 1% of the
aggregate principal amount of the Advances outstanding on the Effective Date
and (B) notwithstanding the forbearance by the Lenders described in Section 4
above, the Amendment No. 2 Amendment Fee.

 

Section 6.               Interest
Periods.  Notwithstanding
anything to the contrary in the Subordinated Credit Agreement or any other Loan
Document, the Borrower may not select any Interest Period that is longer than
three months in duration.

 

5

 

Section 7.               Obligors’ Representations and Warranties.  Each Obligor
acknowledges, represents, warrants and agrees that: (a) after giving
effect to this Agreement, the representations and warranties contained in the
Subordinated 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 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) no Default (other
than the Designated Defaults) has occurred and is continuing; (c) the execution, delivery and performance of
this Agreement are within the corporate power and authority of such Borrower
and have been duly authorized by appropriate corporate action and proceedings; (d) this
Agreement constitutes the legal, valid, and binding obligation of such Obligor
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, and no
portion of the Obligations are subject to avoidance, subordination,
recharacterization, recovery, attack, offset, counterclaim, or defense of any
kind; (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) the
Obligors have granted to the Administrative Agent, a valid, binding, perfected,
enforceable, first priority (subject to Permitted Liens) Liens in the
Collateral and such Liens are not subject to avoidance, subordination,
recharacterization, recovery, attack, offset, counterclaim, or defense of any
kind; (g) no changes have been made in officers’ incumbency since those
certified to the Administrative Agent and the Lenders on the original closing
of the Subordinated Credit Agreement on or about December 17, 2008, except
that Patrick M. McKinney has resigned as Senior Vice President of Engineering
and Operations; (h) no changes have been made to the authorizing
resolutions delivered in connection with the original closing of the
Subordinated Credit Agreement on or about December 17, 2008; and (i) no
changes have been made to the organizational documents since the original
closing of the Subordinated Credit Agreement on or about December 17,
2008.

 

Section 8.               Conditions to Effectiveness.  This Agreement shall
become effective on the Effective Date and enforceable against the parties
hereto upon the receipt by the Administrative Agent of (a) original
counterparts, as requested by the Administrative Agent, of this Agreement duly
and validly executed and delivered by duly authorized officers of the Borrower,
each Guarantor, the Administrative Agent, and the Lenders; (b) a fully
executed consent and forbearance agreement substantially similar to this
Agreement executed by the Borrower, the Majority Lenders (as defined in the
Senior Credit Agreement) and the Senior Administrative Agent addressing the
corresponding terms of the Senior Credit Agreement (the “Senior Forbearance
Agreement”), and (c) such other information, documents, governmental
certificates, agreements, and lien searches as the Administrative Agent or any
Lender may reasonably request.

 

Section 9.               Acknowledgments and Agreements.

 

(a)           The Borrower acknowledges that on the date hereof all
outstanding Obligations are payable in accordance with their terms and the
Borrower waives any defense, offset, counterclaim or recoupment with respect
thereto.

 

(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 other than the Designated Defaults, (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, as
amended hereby.

 

6

 

(c)           The Borrower, each Guarantor, the Administrative Agent and
each Lender does hereby adopt, ratify, and confirm the Subordinated Credit
Agreement, and acknowledges and agrees that the Subordinated Credit Agreement
is and remains in full force and effect, and the Borrower acknowledges and
agrees that their respective liabilities and obligations under the Subordinated
Credit Agreement, the Loan Documents, and the Guaranty, are not impaired in any
respect by this Agreement.

 

(d)           From and after the Effective Date, all references to the
Subordinated Credit Agreement and the Loan Documents shall mean such
Subordinated Credit Agreement and such Loan Documents, as amended by this
Agreement and the other documents executed pursuant hereto.

 

(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 Subordinated Credit Agreement.  Notwithstanding anything to the contrary
contained in the Subordinated Credit Agreement, any failure to comply with the
covenants in Section 5 above shall constitute an Event of Default and the
Administrative Agent and the Lenders shall have the right to exercise all rights
and remedies existing under the Loan Documents and under applicable law.

 

Section 10.             Reaffirmation of the Guaranty.  Each Guarantor hereby ratifies, confirms,
acknowledges and agrees that its obligations under the Guaranties are in full
force and effect and that each 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
Obligations, and its execution and delivery of this Agreement does not indicate
or establish an approval or consent requirement by each Guarantor under each
Guaranty in connection with the execution and delivery of amendments, consents
or waivers to the Subordinated Credit Agreement, the Notes or any of the other
Loan Documents.

 

Section 11.             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.

 

Section 12.             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
Subordinated Credit Agreement.

 

Section 13.             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 14.             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 15.             RELEASE:  For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
each Obligor hereby, for itself and its successors and assigns, fully and
without reserve, releases and forever discharges each Secured Party, its
respective successors and assigns, officers, directors, employees,
representatives, trustees, attorneys, agents and affiliates (collectively the “Released
Parties” and individually a “Released Party”) from any and all
actions, claims, demands, causes of action, judgments, executions, suits,
debts, liabilities, costs, damages, expenses or other obligations of any kind
and nature whatsoever, known or unknown, direct and/or indirect, at law or in
equity, whether now existing or hereafter asserted (INCLUDING, WITHOUT
LIMITATION, ANY OFFSETS, REDUCTIONS, REBATEMENT, 

 

7

 

CLAIMS OF USURY OR CLAIMS WITH
RESPECT TO THE NEGLIGENCE OF ANY RELEASED PARTY), for or because of any matters
or things occurring, existing or actions done, omitted to be done, or suffered
to be done by any of the Released Parties, in each case, on or prior to the
Effective Date and are in any way directly or indirectly arising out of or in
any way connected to any of this Agreement, the Subordinated Credit Agreement,
any other Loan Document, or any of the transactions contemplated hereby or
thereby (collectively, the “Released Matters”).  Each Obligor, by execution hereof, hereby
acknowledges and agrees that the agreements in this Section 15 are intended
to cover and be in full satisfaction for all or any alleged injuries or damages
arising in connection with the Released Matters.

 

Section 16.             Entire Agreement.  THIS AGREEMENT, THE SUBORDINATED 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]

 

8

 

IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the day and year
first above written.

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  CANO PETROLEUM, INC.,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  S. Jeffrey Johnson

  
	
   

  	
  Name:

  	
  S. Jeffrey Johnson

  
	
   

  	
  Title:

  	
  Chairman and CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GUARANTORS:

  
	
   

  	
   

  
	
   

  	
  SQUARE ONE ENERGY, INC.

  
	
   

  	
  LADDER COMPANIES, INC.

  
	
   

  	
  W.O. ENERGY OF NEVADA, INC.

  
	
   

  	
  WO ENERGY, INC.

  
	
   

  	
  CANO PETRO OF NEW MEXICO, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Each
  By:

  	
  /s/
  S. Jeffrey Johnson

  
	
   

  	
  Name:

  	
  S. Jeffrey Johnson

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  W.O. OPERATING COMPANY, LTD.

  
	
   

  	
  W.O. PRODUCTION COMPANY, LTD.

  
	
   

  	
  Each
  by: WO Energy, Inc., its general partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  S. Jeffrey Johnson

  
	
   

  	
   

  	
  Name:

  	
  S. Jeffrey Johnson

  
	
   

  	
   

  	
  Title:

  	
  President

  

 

Signature
Page to Consent and Forbearance Agreement

 

 

	
   

  	
  ADMINISTRATIVE AGENT/LENDER:

  
	
   

  	
   

  
	
   

  	
  UNIONBANCAL
  EQUITIES, INC.,

  
	
   

  	
  as
  the Administrative Agent and sole Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Ted McNulty

  
	
   

  	
  Name:

  	
  Ted
  McNulty

  
	
   

  	
  Title:

  	
  SVP

  

 

Signature
Page to Consent and Forbearance Agreement

 

 

SCHEDULE 1

SUBJECT HEDGE CONTRACTS

 

(25260)
the $7.75/$9.85 costless collars for 1,567 Mcf per day covering the period
9/1/10 through 12/31/10; and

 

(25262)
the $7.75/$11.60 costless collars for 1,467 Mcf per day covering the period
1/1/11 through 3/31/11Exhibit 10.1

 

AMENDMENT TO EMPLOYMENT AGREEMENT

 

This Amendment to Employment
Agreement (‘Agreement”), entered into as of the 21st day of July , 2010 by
and between the River Rock Entertainment Authority (‘Authority”), a
governmental instrumentality of the Dry Creek Band of Pomo Indians (‘Tribe”),
on behalf of the River Rock Casino (“Casino”), a governmental economic
development  project of the Tribe, and
David Fendrick (“Employee”), amends certain Employment Agreement dated 9th day of April, 2010(“the
Agreement”).  Capitalized terms used but
not otherwise in this Agreement shall have the respective meanings ascribed to
them in the Agreement.

 

In consideration of the covenants
and agreements contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, the
parties to this Amendment agree as follows:

 

Amendment:  Section 8,
Termination by Authority shall read:

 

Termination by Authority.  Should the Authority terminate Key Employee without Good Cause,
the Authority shall provide the Key Employee sixty (60) days written
notice.  Should the Authority require the
Key Employee to leave his position prior to the Sixty (60) days, the Authority
shall pay the Key Employee for the time not worked.

 

As sole
compensation for such termination, and provided such termination is more than
90 days following the Commencement Date and Key Employee executes a release and
waiver as described in Section 7.5 (d) above, the Authority shall pay
to Key Employee an amount equal to his salary for a period of nine (9) months
from the Actual Date of Termination, together with all employee benefits during
that nine-month period which he would have earned had he remained employed
during said period.

 

Miscellaneous:

 

(a)          Except
as amended hereby the terms of the Agreement shall remain unmodified and in all
other respects shall continue in full force and effect.

 

(b)         This
Agreement shall control in the event of any conflict between it and the
Agreement.

 

The Parties have executed this
Agreement effective as of the Effective Date as set forth above.

 

 

	
  /s/Harvey Hopkins

  	
   

  
	
  Harvey Hopkins: Chairman, River
  Rock Entertainment Authority

  	
   

  

 

 

	
  /s/David Fendrick

  	
   

  
	
  David Fendrick: Employee

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