Document:

Exhibit 4.1

 

REGISTRATION
RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of November 2, 2007,
by and among Cano Petroleum, Inc., a Delaware corporation, with headquarters
located at 801 Cherry St., Suite 3200, Fort Worth, Texas 76102 (the “Company”), and the undersigned buyers
(each, a “Buyer”, and
collectively, the “Buyers”).

 

WHEREAS:

A.            In connection with the Securities
Purchase Agreement by and among the parties hereto of even date herewith (the “Securities Purchase Agreement”), the Company has agreed,
upon the terms and subject to the conditions set forth in the Securities
Purchase Agreement, to issue and sell to each Buyer shares (the “Common Shares”) of the Company’s common
stock, par value $0.0001 per share (the “Common Stock”).

B.            In accordance with the terms of the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
“1933 Act”), and applicable state
securities laws.

 

NOW,
THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:

1.     Definitions.

Capitalized terms used
herein and not otherwise defined herein shall have the respective meanings set
forth in the Securities Purchase Agreement. 
As used in this Agreement, the following terms shall have the following
meanings:

a.     “Additional
Effectiveness Date” means the date the Additional Registration
Statement is declared effective by the SEC.

b.     “Additional
Effectiveness Deadline” means the date which is forty five (45)
calendar days after the earlier of the Additional Filing Date and the
Additional Filing Deadline or in the event that the Registration Statement is
subject to any review by the SEC pursuant to which the SEC issues comments,
seventy five (75) calendar days after the earlier of the Additional Filing Date
and the Additional Filing Deadline.

c.     “Additional
Filing Date” means the date on which the Additional Registration
Statement is filed with the SEC.

d.     “Additional
Filing Deadline” means if Cutback Shares are required to be included
in the Additional Registration Statement, the later of (i) the date sixty (60)
days after the date substantially all of the Registrable Securities registered
under the immediately preceding Registration Statement are sold and (ii) the
date six (6) months from the Initial Effective Date or the last Additional
Effective Date, as applicable.

 

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e.     “Additional
Registrable Securities” means, (i) any Cutback Shares not previously
included on a Registration Statement and (ii) any capital stock of the Company
issued or issuable with respect to the Common Shares or Cutback Shares, as
applicable, as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise.

f.      “Additional
Registration Statement” means a registration statement or
registration statements of the Company filed under the 1933 Act covering any
Additional Registrable Securities.

g.     “Additional Required Registration Amount” means any Cutback
Shares not previously included on a Registration Statement.

h.     “Business Day” means any day other than Saturday, Sunday or any
other day on which commercial banks in the City of New York are authorized or
required by law to remain closed.

i.      “Closing Date” shall have the meaning set
forth in the Securities Purchase Agreement.

j.      “Cutback
Shares” means any of the Initial Required Registration Amount
(without regard to clause (II) in the definition thereof) of Registrable
Securities not included in all Registration Statements previously declared
effective hereunder as a result of a limitation on the maximum number of shares
of Common Stock of the Company permitted to be registered by the staff of the
SEC pursuant to Rule 415.

k.     “Effective Date” means the Initial Effective Date and the
Additional Effective Date, as applicable.

l.      “Effectiveness Deadline” means the Initial
Effectiveness Deadline and the Additional Effectiveness Deadline, as
applicable.

m.    “Filing Deadline” means the Initial Filing Deadline and the
Additional Filing Deadline, as applicable.

n.     “Initial
Effective Date” means the date that the Initial Registration
Statement has been declared effective by the SEC.

o.     “Initial
Effectiveness Deadline” means the date which is (i) in the event
that the Registration Statement is not subject to any review by the SEC
pursuant to which the SEC issues comments, ninety (90) days after the Closing
Date or (ii) in the event that the Registration Statement is subject to any
review by the SEC pursuant to which the SEC issues comments, one hundred twenty
(120) days after the Closing Date.

p.     “Initial
Filing Deadline” means the date that is forty five (45) days after
the Closing Date.

 

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q.     “Initial
Registrable Securities” means (i) the Common Shares and (ii) any
capital stock of the Company issued or issuable with respect to the Common
Shares as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise.

r.      “Initial Registration
Statement” means a registration statement or registration statements
of the Company filed under the 1933 Act covering the Initial Registrable
Securities.

s.     “Initial Required Registration Amount” means (I) 100% of the number of
Common Shares issued or (II) such other amount as may be required by the
staff of the SEC pursuant to Rule 415 with any cutback applied pro rata to all
Registrable Securities.

t.      “Investor” means a Buyer or any transferee
or assignee thereof to whom a Buyer assigns its rights under this Agreement and
who agrees to become bound by the provisions of this Agreement in accordance
with Section 9 and any transferee or assignee thereof to whom a transferee or
assignee assigns its rights under this Agreement and who agrees to become bound
by the provisions of this Agreement in accordance with Section 9.

u.     “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

v.     “register,” “registered,”
and “registration” refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415, and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.

w.    “Registrable Securities” means the Initial Registrable
Securities and the Additional Registrable Securities.

x.     “Registration Statement” means a registration statement or registration
statements of the Company filed under the 1933 Act covering the Registrable
Securities.

y.     “Required Holders” means the holders of at least a majority of
the Registrable Securities.

z.     “Required Registration Amount” means either the Initial Required
Registration Amount or the Additional Required Registration Amount, as
applicable.

aa.   “Rule 415” means Rule 415 under the 1933 Act or any successor
rule providing for offering securities on a continuous or delayed basis.

bb.  “SEC” means the United States Securities and Exchange
Commission.

 

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2.     Registration.

a.     Initial Mandatory
Registration.  The Company shall
prepare, and, as soon as practicable, but in no event later than the Initial
Filing Deadline, file with the SEC the Initial Registration Statement on Form
S-3 covering the resale of all of the Initial Registrable Securities.  In the event that Form S-3 is unavailable for
such a registration, the Company shall use Form S-1 or such other form as is
available for such a registration on another appropriate form reasonably
acceptable to the Required Holders.  The
Initial Registration Statement prepared pursuant hereto shall register for
resale at least the number of shares of Common Stock equal to the Initial
Required Registration Amount determined as of the date the Initial Registration
Statement is initially filed with the SEC. 
The Initial Registration Statement shall contain (except if otherwise
directed by the Required Holders) the “Selling Stockholders” and “Plan
of Distribution” sections in substantially the form attached hereto as Exhibit
B.  The Company shall use its best
efforts to have the Initial Registration Statement declared effective by the
SEC as soon as practicable, but in no event later than the Initial
Effectiveness Deadline.  By 9:30 a.m.
New York time on the Business Day following the Initial Effective Date, the
Company shall file with the SEC in accordance with Rule 424 under the 1933 Act
the final prospectus to be used in connection with sales pursuant to such
Initial Registration Statement.

b.     Additional Mandatory
Registrations.  The Company shall
prepare, and, as soon as practicable but in no event later than the Additional
Filing Deadline, file with the SEC an Additional Registration Statement on Form
S-3 covering the resale of all of the Additional Registrable Securities not
previously registered on an Additional Registration Statement hereunder.  To the extent the staff of the SEC does not
permit the Additional Required Registration Amount to be registered on an
Additional Registration Statement, the Company shall file Additional
Registration Statements successively trying to register on each such Additional
Registration Statement the maximum number of remaining Additional Registrable
Securities until the Additional Required Registration Amount has been
registered with the SEC.  In the event
that Form S-3 is unavailable for such a registration, the Company shall use
such other form as is available for such a registration on another appropriate
form reasonably acceptable to the Required Holders.  Each Additional Registration Statement
prepared pursuant hereto shall register for resale at least that number of
shares of Common Stock equal to the Additional Required Registration Amount
determined as of the date such Additional Registration Statement is initially
filed with the SEC.  Each Additional
Registration Statement shall contain (except if otherwise directed by the
Required Holders) the “Selling Stockholders” and “Plan of Distribution”
sections in substantially the form attached hereto as Exhibit B.  The Company shall use its best efforts to
have each Additional Registration Statement declared effective by the SEC as
soon as practicable, but in no event later than the Additional Effectiveness
Deadline.  By 9:30 a.m. New York time on the Business Day
following the Additional Effective Date, the Company shall file with the SEC in
accordance with Rule 424 under the 1933 Act the final prospectus to be used in
connection with sales pursuant to such Additional Registration Statement..

c.     Allocation of
Registrable Securities.  The initial
number of Registrable Securities included in any Registration Statement and any
increase or decrease in the number of Registrable Securities included therein
shall be allocated pro rata among the Investors based on the number of
Registrable Securities held by each Investor at the time the Registration
Statement covering such initial number of Registrable Securities or increase or
decrease thereof is declared 

 

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effective
by the SEC.  In the event that an
Investor sells or otherwise transfers any of such Investor’s Registrable
Securities, each transferee shall be allocated a pro rata portion of the then
remaining number of Registrable Securities included in such Registration
Statement for such transferor.  In no
event shall the Company include any securities other than Registrable
Securities on any Registration Statement without the prior written consent of
the Required Holders.

d.     Legal Counsel.  Subject to Section 5 hereof, the Required
Holders shall have the right to select one legal counsel to review and oversee
any registration pursuant to this Section 2 (“Legal
Counsel”), which shall be Schulte Roth & Zabel LLP or such other
counsel as thereafter designated by the Required Holders.  The Company and Legal Counsel shall
reasonably cooperate with each other in performing the Company’s obligations
under this Agreement.

e.     Ineligibility for Form
S-3.  In the event that Form S-3 is
not available for the registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable
Securities on another appropriate form reasonably acceptable to the Required
Holders and (ii) undertake to register the Registrable Securities on Form S-3
as soon as such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.

f.      Effect of Failure to
File and Obtain and Maintain Effectiveness of Registration Statement.  If (i) a Registration Statement covering all
of the Registrable Securities required to be covered thereby and required to be
filed by the Company pursuant to this Agreement is (A) not filed with the SEC
on or before the respective Filing Deadline (a “Filing
Failure”) or (B) not declared effective by the SEC on or before the
respective Effectiveness Deadline (an “Effectiveness Failure”)
or (ii) on any day after the Effective Date sales of all of the Registrable
Securities required to be included on such Registration Statement cannot be
made (other than during an Allowable Grace Period (as defined in Section 3(r))
pursuant to such Registration Statement (including, without limitation, because
of a failure to keep such Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to such Registration
Statement, to register a sufficient number of shares of Common Stock or to
maintain the listing of the Common Stock) (a “Maintenance
Failure”) then, as partial relief for the damages to any holder by
reason of any such delay in or reduction of its ability to sell the underlying
shares of Common Stock and not as a penalty (which remedy shall not be
exclusive of any other remedies available at law or in equity), the Company
shall pay to each holder of Registrable Securities relating to such Registration
Statement an amount in cash equal to one percent (1.0%) of the aggregate
Purchase Price (as such term is defined in the Securities Purchase Agreement)
of such Investor’s Registrable Securities included in such Registration
Statement on each of the following dates: 
(i) the day of a Filing Failure; (ii) the day of an Effectiveness
Failure; (iii) the initial day of a Maintenance Failure; (iv) on every
thirtieth day after the day of a Filing Failure and thereafter (pro rated for
periods totaling less than thirty days) until such Filing Failure is cured; (v)
on every thirtieth day after the day of an Effectiveness Failure and thereafter
(pro rated for periods totaling less than thirty days) until such Effectiveness
Failure is cured; and (vi) on every thirtieth day after the initial day of a 

 

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Maintenance
Failure and thereafter (pro rated for periods totaling less than thirty days)
until such Maintenance Failure is cured. 
The payments to which a holder shall be entitled pursuant to this
Section 2(f) are referred to herein as “Registration Delay Payments.”  Registration Delay Payments shall be paid on
the earlier of (I) the dates set forth above and (II) the third Business Day
after the event or failure giving rise to the Registration Delay Payments is
cured.  In the event the Company fails to
make Registration Delay Payments in a timely manner, such Registration Delay
Payments shall bear interest at the rate of one and one-half percent (1.5%) per
month (prorated for partial months) until paid in full.  Notwithstanding anything herein or in the
Securities Purchase Agreement to the contrary in no event shall the aggregate
amount of Registration Delay Payments (other than Registration Delay Payments
payable pursuant to events that are within the control of the Company, such as
solely for the purposes of an example, failure to file any registration
statement required hereby) exceed, in the aggregate, 10% of the aggregate
Purchase Price.

3.     Related Obligations.

At
such time as the Company is obligated to file a Registration Statement with the
SEC pursuant to Section 2(a), 2(b) or 2(e), the Company will use its best
efforts to effect the registration of the Registrable Securities in accordance
with the intended method of disposition thereof and, pursuant thereto, the
Company shall have the following obligations:

a.     The Company shall promptly
prepare and file with the SEC a Registration Statement with respect to the
Registrable Securities and use its best efforts to cause such Registration
Statement relating to the Registrable Securities to become effective as soon as
practicable after such filing (but in no event later than the Effectiveness
Deadline).  The Company shall keep each
Registration Statement effective pursuant to Rule 415 at all times until the
earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) (or any successor thereto) promulgated under
the 1933 Act or (ii) the date on which the Investors shall have sold all of the
Registrable Securities covered by such Registration Statement (the “Registration Period”).  The Company shall ensure that each
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein,
or necessary to make the statements therein (in the case of prospectuses, in
the light of the circumstances in which they were made) not misleading.  The term “best efforts” shall mean, among
other things, that the Company shall submit to the SEC, within three (3)
Business Days after the later of the date that (i) the Company learns that no
review of a particular Registration Statement will be made by the staff of the
SEC or that the staff has no further comments on a particular Registration
Statement, as the case may be and (ii) the approval of Legal Counsel pursuant
to Section 3(c) (which approval is immediately sought and shall not be
unreasonably withheld or delayed), a request for acceleration of effectiveness
of such Registration Statement to a time and date not later than 48 hours after
the submission of such request.

b.     The Company shall prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with such Registration Statement, which prospectus is to be filed pursuant to
Rule 424 promulgated under the 1933 Act, as may be necessary to keep such 

 

 

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Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement.  In the case of amendments and
supplements to a Registration Statement which are required to be filed pursuant
to this Agreement (including pursuant to this Section 3(b)) by reason of the
Company filing a report on Form 10-Q, Form 10-K or any analogous report under
the Securities Exchange Act of 1934, as amended (the “1934 Act”), the Company shall have
incorporated such report by reference into such Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC within
one (1) Business Day after the day on which the 1934 Act report is filed which
created the requirement for the Company to amend or supplement such
Registration Statement.

c.     The Company shall (A)
permit Legal Counsel to review and comment upon (i) a Registration Statement at
least five (5) Business Days prior to its filing with the SEC and (ii) all
amendments and supplements to all Registration Statements (except for Annual
Reports on Form 10-K or Form 10-KSB, Quarterly Reports on Form 10-Q or Form
10-QSB, Current Reports on Form 8-K, and any similar or successor reports)
within a reasonable number of days prior to their filing with the SEC, and (B)
not file any Registration Statement or amendment or supplement thereto in a
form to which Legal Counsel reasonably objects. 
The Company shall not submit a request for acceleration of the
effectiveness of a Registration Statement or any amendment or supplement
thereto without the prior approval of Legal Counsel, which consent shall not be
unreasonably withheld or delayed.  The
Company shall furnish to Legal Counsel, without charge, (i) copies of any
correspondence from the SEC or the staff of the SEC to the Company or its representatives
relating to any Registration Statement, (ii) promptly after the same is
prepared and filed with the SEC, one copy of any Registration Statement and any
amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, if requested by an Investor, and
all exhibits and (iii) upon the effectiveness of any Registration Statement,
one copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto.  The
Company shall reasonably cooperate with Legal Counsel in performing the Company’s
obligations pursuant to this Section 3.

d.     The Company shall furnish
to each Investor whose Registrable Securities are included in any Registration
Statement, without charge, (i) promptly after the same is prepared and filed
with the SEC, at least one copy of such Registration Statement and any
amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, and, if requested by an Investor,
all exhibits and each preliminary prospectus, (ii) upon the effectiveness of
any Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such
other number of copies as such Investor may reasonably request) and (iii) such
other documents, including copies of any preliminary or final prospectus, as
such Investor may reasonably request from time to time in order to facilitate
the disposition of the Registrable Securities owned by such Investor.

 

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e.     Neither the Company nor any
Subsidiary (as defined in the Securities Purchase Agreement) nor affiliate
thereof shall identify any Buyer as an underwriter in any public disclosure or
filing with the SEC or any Principal Market (as defined in the Securities
Purchase Agreement) or any Eligible Market (as defined in the Securities
Purchase Agreement) and any Buyer being deemed an underwriter by the SEC shall
not relieve the Company of any obligations it has under this Agreement or any
other Transaction Document (as defined in the Securities Purchase Agreement) provided,
however, that the foregoing shall not prohibit the Company from
including the disclosure found in the “Plan of Distribution” section attached
hereto as Exhibit B in the Registration Statement.  In addition, if any Buyer is an underwriter
or deemed an underwriter by the SEC rules and such Buyer refuses to be
identified as an underwriter or deemed underwriter in the Registration
Statement, such Buyer’s Registrable Securities shall not be included in the
Registration Statement and the Company shall not be treated as if it did not
register the Initial Registrable Securities or Additional Registrable
Securities, as applicable, due to such Buyer’s refusal and the Buyer not be
entitled to any Registration Delay Payments.

f.      The Company shall use its
best efforts to (i) register and qualify, unless an exemption from registration
and qualification applies, the resale by Investors of the Registrable
Securities covered by a Registration Statement under such other securities or “blue
sky” laws of all applicable jurisdictions in the United States, (ii) prepare
and file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all other actions reasonably necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection therewith or as a
condition thereto to (x) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(f), (y)
subject itself to general taxation in any such jurisdiction, or (z) file a
general consent to service of process in any such jurisdiction.  The Company shall promptly notify Legal
Counsel and each Investor who holds Registrable Securities of the receipt by
the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or “blue sky” laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.

g.     The Company shall notify
Legal Counsel and each Investor in writing of the happening of any event, as
promptly as practicable after becoming aware of such event, as a result of
which the prospectus included in a Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading
(provided that in no event shall such notice contain any material, nonpublic
information), and, subject to Section 3(r), promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). 
The Company shall also promptly notify Legal Counsel and each Investor
in writing (i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and when 

 

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a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and
each Investor by facsimile or e-mail on the same day of such effectiveness and
by overnight mail), (ii) of any request by the SEC for amendments or
supplements to a Registration Statement or related prospectus or related
information, and (iii) of the Company’s reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.

h.     The Company shall use its
best efforts to prevent the issuance of any stop order or other suspension of
effectiveness of a Registration Statement, or the suspension of the
qualification of any of the Registrable Securities for sale in any jurisdiction
and, if such an order or suspension is issued, to obtain the withdrawal of such
order or suspension at the earliest possible moment and to notify Legal Counsel
and each Investor who holds Registrable Securities being sold of the issuance
of such order and the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.

i.      Upon the written request
of any Investor in connection with such Investor’s due diligence requirements,
if any, the Company shall make available for inspection by (i) any Investor,
(ii) Legal Counsel and (iii) one firm of accountants or other agents retained
by the Investors (collectively, the “Inspectors”),
all pertinent financial and other records, and pertinent corporate documents
and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each
Inspector, and cause the Company’s officers, directors and employees, counsel
and the Company’s independent certified public accountants to supply all
information which may be necessary and any Inspector may reasonably request;
provided, however, that each Inspector shall agree to hold in strict confidence
and shall not make any disclosure (except to an Investor) or use of any Record
or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the 1933 Act, (b) the release of such Records is ordered pursuant to a final,
non-appealable subpoena or order from a court or government body of competent
jurisdiction, or (c) the information in such Records has been made generally
available to the public other than by disclosure in violation of this
Agreement.  Each Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.  Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investors’ ability to sell Registrable Securities in a manner
which is otherwise consistent with applicable laws and regulations.

j.      The Company shall hold in
confidence and not make any disclosure of information concerning an Investor
provided to the Company unless (i) disclosure of such information is necessary
to comply with federal or state securities laws, (ii) the disclosure of such
information is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other final, non-appealable order from a court or
governmental body of competent jurisdiction, or (iv) such information has been
made generally available to the public other than by disclosure in violation of
this Agreement or any other agreement. 
The Company agrees that it shall, upon learning that 

 

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disclosure
of such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor’s
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

k.     The Company shall use its
reasonable best efforts either to (i) cause all of the Registrable Securities
covered by a Registration Statement to be listed on each securities exchange on
which securities of the same class or series issued by the Company are then listed,
if any, if the listing of such Registrable Securities is then permitted under
the rules of such exchange or (ii) secure the inclusion for quotation of all of
the Registrable Securities on The American Stock Exchange, or (iii) if, despite
the Company’s reasonable best efforts to satisfy the preceding clauses (i) and
(ii) the Company is unsuccessful in satisfying the preceding clauses (i) and
(ii), to secure the inclusion for quotation on The New York Stock Exchange, The
NASDAQ Global Market, The NASDAQ Global Select Market or the NASDAQ Capital
Market for such Registrable Securities and, without limiting the generality of
the foregoing, to use its best efforts to arrange for at least two market
makers to register with the Financial Industry Regulatory Authority (“FINRA”)
as such with respect to such Registrable Securities.  The Company shall pay all fees and expenses
in connection with satisfying its obligation under this Section 3(k).

l.      The Company shall
cooperate with the Investors who hold Registrable Securities being offered and,
to the extent applicable, facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legend) representing the Registrable
Securities to be offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
Investors may reasonably request and registered in such names as the Investors
may request.

m.    If requested by an Investor,
the Company (i) shall as soon as practicable but in no event later than (a)
five (5) days after the receipt of notice from such Investor, incorporate in a
prospectus supplement or (b) forty-five days after the receipt of notice from
such Investor incorporate into a post-effective amendment such information as
an Investor reasonably requests to be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being offered
or sold, the purchase price being paid therefor and any other terms of the
offering of the Registrable Securities to be sold in such offering; (ii) shall
make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) shall supplement
or make amendments to any Registration Statement if reasonably requested by an
Investor holding any Registrable Securities.

n.     The Company shall use its
best efforts to cause the Registrable Securities covered by the Registration
Statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary to consummate the disposition of such
Registrable Securities.

o.     The Company shall make
generally available to its security holders as soon as practical, including via
the EDGAR system of the SEC or via a public announcement, but not later than
ninety (90) days after the close of the period covered thereby, an earnings 

 

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statement
(in form complying with, and in the manner provided by, the provisions of Rule
158 under the 1933 Act) covering a twelve-month period beginning not later than
the first day of the Company’s fiscal quarter next following the Effective Date
of a Registration Statement.

p.     The Company shall otherwise
use its best efforts to comply with all applicable rules and regulations of the
SEC in connection with any registration hereunder.

q.     Within two (2) Business
Days after a Registration Statement which covers Registrable Securities is
ordered effective by the SEC, the Company shall deliver, and shall cause legal
counsel for the Company to deliver, to the transfer agent for such Registrable
Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) confirmation that such Registration
Statement has been declared effective by the SEC in the form attached hereto as
Exhibit A.

r.      Notwithstanding anything
to the contrary herein, at any time after the Effective Date, the Company may
delay the disclosure of material, non-public information concerning the Company
the disclosure of which at the time is not, in the good faith opinion of the
Board of Directors of the Company and its counsel, in the best interest of the
Company and, in the opinion of counsel to the Company, otherwise required (a “Grace Period”); provided, that the Company
shall promptly (i) notify the Investors in writing of the existence of material,
non-public information giving rise to a Grace Period (provided that in each
notice the Company will not disclose the content of such material, non-public
information to the Investors) and the date on which the Grace Period will
begin, and (ii) notify the Investors in writing of the date on which the Grace
Period ends; and, provided further, that no Grace Period shall exceed twelve
(12) consecutive days and during any three hundred sixty five (365) day period
such Grace Periods shall not exceed an aggregate of twenty-five (25) days and
the first day of any Grace Period must be at least five (5) trading days after
the last day of any prior Grace Period (each, an “Allowable Grace Period”). 
For purposes of determining the length of a Grace Period above, the
Grace Period shall begin on and include the date the Investors receive the
notice referred to in clause (i) and shall end on and include the later of the
date the Investors receive the notice referred to in clause (ii) and the date
referred to in such notice.  The
provisions of Section 3(g) hereof shall not be applicable during the period of
any Allowable Grace Period.  Upon
expiration of the Grace Period, the Company shall again be bound by the first
sentence of Section 3(g) with respect to the information giving rise thereto
unless such material, non-public information is no longer applicable.  Notwithstanding anything to the contrary, the
Company shall cause its transfer agent to deliver unlegended shares of Common
Stock to a transferee of an Investor in accordance with the terms of the
Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for
sale, and delivered a copy of the prospectus included as part of the applicable
Registration Statement (unless an exemption from such delivery requirement
exists), prior to the Investor’s receipt of the notice of a Grace Period and
for which the Investor has not yet settled.

4.     Obligations of the Investors.

a.     At least ten (10) Business
Days prior to the first anticipated filing date of a Registration Statement,
the Company shall notify each Investor in writing of the information the
Company requires from each such Investor if such Investor elects to have any of
such 

 

11

 

Investor’s
Registrable Securities included in such Registration Statement.  It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it, as shall be reasonably
required to effect and maintain the effectiveness of the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.

b.     Each Investor, by such
Investor’s acceptance of the Registrable Securities, agrees to cooperate with
the Company as reasonably requested by the Company in connection with the
preparation and filing of any Registration Statement hereunder, unless such
Investor has notified the Company in writing of such Investor’s election to
exclude all of such Investor’s Registrable Securities from such Registration
Statement.

c.     Each Investor agrees that,
upon receipt of any notice from the Company of the happening of any event of
the kind described in Section 3(h) or the first sentence of 3(g), such Investor
will immediately discontinue disposition of Registrable Securities pursuant to
any Registration Statement(s) covering such Registrable Securities until with
regard to a discontinuance pursuant to Section 3(h), such Investor’s receipt of
a written notice from the Company that there is no further event under Section
3(h) in effect and with regard to a discontinuance pursuant to the first
sentence of Section 3(g), such Investor’s receipt of the copies of the
supplemented or amended prospectus contemplated by the first sentence of 3(g)
or receipt of notice that no supplement or amendment is required.  Notwithstanding anything to the contrary, the
Company shall cause its transfer agent to deliver unlegended shares of Common
Stock to a transferee of an Investor in accordance with the terms of the
Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for
sale prior to the Investor’s receipt of a notice from the Company of the
happening of any event of the kind described in Section 3(h) or the first
sentence of 3(g) and for which the Investor has not yet settled.

d.     Each Investor covenants and agrees that it will comply
with the prospectus delivery requirements of the 1933 Act as applicable to it
or an exemption therefrom in connection with sales of Registrable Securities
pursuant to the Registration Statement.

5.     Expenses of Registration.

All
reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant
to Sections 2 and 3, including, without limitation, all registration, listing
and qualifications fees, printers and accounting fees, and fees and
disbursements of counsel for the Company shall be paid by the Company.  The Company shall also reimburse the
Investors for the fees and disbursements of Legal Counsel in connection with
registration, filing or qualification pursuant to Sections 2 and 3 of this
Agreement which amount shall be limited to $15,000 for each such registration,
filing or qualification.

 

 

12

 

6.     Indemnification.

In
the event any Registrable Securities are included in a Registration Statement
under this Agreement:

a.     To the fullest extent
permitted by law, the Company will, and hereby does, indemnify, hold harmless
and defend each Investor, the directors, officers, members, partners,
employees, agents, representatives of, and each Person, if any, who controls
any Investor within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Person”), against any losses,
claims, damages, liabilities, judgments, fines, penalties, charges, costs,
reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or
several, other than consequential, indirect or incidental damages
(collectively, “Claims”) incurred
in investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto (“Indemnified Damages”),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon:  (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
“blue sky” laws of any jurisdiction in which Registrable Securities are offered
(“Blue Sky Filing”), or the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii) any
untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading,
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement or (iv) any
violation of this Agreement (the matters in the foregoing clauses (i) through
(iv) being, collectively, “Violations”).  Subject to Section 6(c), the Company shall
reimburse the Indemnified Persons, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred
by them in connection with investigating or defending any such Claim.  Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section
6(a):  (i) shall not apply to a Claim by
an Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person for such Indemnified Person expressly for
use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto, if such prospectus was timely
made available by the Company pursuant to Section 3(d) and (ii) shall not apply
to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed.  Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer
of the Registrable Securities by the Investors pursuant to Section 9.

 

13

 

b.     In connection with any
Registration Statement in which an Investor is participating, each such
Investor agrees to severally and not jointly indemnify, hold harmless and
defend, to the same extent and in the same manner as is set forth in Section 6(a),
the Company, each of its directors, each of its officers who signs the
Registration Statement and each Person, if any, who controls the Company within
the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Party”), against any Claim or
Indemnified Damages to which any of them may become subject, under the 1933
Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages
arise out of or are based upon any Violation, in each case to the extent, and
only to the extent, that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and, subject
to Section 6(c), such Investor will reimburse any legal or other expenses
reasonably incurred by an Indemnified Party in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld or delayed;
provided, further, however, that the Investor shall be liable under this
Section 6(b) for only that amount of a Claim or Indemnified Damages as does not
exceed the net proceeds to such Investor as a result of the sale of Registrable
Securities pursuant to such Registration Statement.  Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.

c.     Promptly after receipt by an
Indemnified Person or Indemnified Party under this Section 6 of notice of the
commencement of any action or proceeding (including any governmental action or
proceeding) involving a Claim, such Indemnified Person or Indemnified Party
shall, if a Claim in respect thereof is to be made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party
and the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel with the fees and expenses of not more than
one counsel for such Indemnified Person or Indemnified Party to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential differing interests between such Indemnified Person
or Indemnified Party and any other party represented by such counsel in such
proceeding.  In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding at least a majority  in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates.  The Indemnified Party or Indemnified Person
shall cooperate reasonably with the indemnifying party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party
and shall furnish to the indemnifying party all information reasonably
available to the Indemnified Party or Indemnified Person which relates to such
action or Claim.  The indemnifying party
shall keep the Indemnified Party or Indemnified Person fully apprised at all
times as to the status of the defense or any settlement 

 

14

 

negotiations
with respect thereto.  No indemnifying
party shall be liable for any settlement of any action, claim or proceeding
effected without its prior written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent.  No indemnifying party shall,
without the prior written consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party or Indemnified Person of
a release from all liability in respect to such Claim or litigation, and such
settlement shall not include any admission as to fault on the part of the
Indemnified Party or the Indemnified Person. 
Following indemnification as provided for hereunder, the indemnifying
party shall be subrogated to all rights of the Indemnified Party or Indemnified
Person with respect to all third parties, firms or corporations relating to the
matter for which indemnification has been made. 
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.

d.     The indemnification
required by this Section 6 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills
are received or Indemnified Damages are incurred.

e.     The indemnity agreements
contained herein shall be in addition to 
(i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.

7.     Contribution.

To
the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under
Section 6 to the fullest extent permitted by law; provided, however, that:  (i) no Person involved in the sale of
Registrable Securities which Person is guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) in connection with such
sale shall be entitled to contribution from any Person involved in such sale of
Registrable Securities who was not guilty of fraudulent misrepresentation; and
(ii) contribution by any seller of Registrable Securities shall be limited in
amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities pursuant to such Registration Statement.

8.     Reports Under the 1934 Act.

With
a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration (“Rule 144”),
the Company agrees to:

 

15

 

a.     make and keep public
information available, as those terms are understood and defined in Rule 144;

b.     file with the SEC in a
timely manner all reports and other documents required of the Company under the
1933 Act and the 1934 Act so long as the Company remains subject to such
requirements (it being understood that nothing herein shall limit the Company’s
obligations under Section 4(c) of the Securities Purchase Agreement) and the
filing of such reports and other documents is required for the applicable
provisions of Rule 144; and

c.     furnish to each Investor so
long as such Investor owns Registrable Securities, promptly upon request, (i) a
written statement by the Company, if true, that it has complied with the
reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.

9.     Assignment of Registration Rights.

The
rights under this Agreement shall be automatically assignable by the Investors
to any transferee of all or any portion of such Investor’s Registrable
Securities if:  (i) the Investor agrees
in writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment; (ii) the Company is, within a reasonable time after such transfer
or assignment, furnished with written notice of (a) the name and address of
such transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned; (iii) immediately
following such transfer or assignment the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act or
applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.

10.   Amendment of Registration Rights.

Provisions
of this Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Required
Holders.  Any amendment or waiver effected
in accordance with this Section 10 shall be binding upon each Investor and the
Company.  No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities.  No consideration
shall be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the parties to this Agreement.

11.   Miscellaneous.

a.     A Person is deemed to be a
holder of Registrable Securities whenever such Person owns or is deemed to own
of record such Registrable Securities. 
If the Company receives conflicting instructions, notices or elections
from two or more Persons with respect to

 

16

 

the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the such record owner of such
Registrable Securities.

b.     Any notices, consents,
waivers or other communications required or permitted to be given under the
terms of this Agreement must be in writing and will be deemed to have been
delivered:  (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. 
The addresses and facsimile numbers for such communications shall be:

 

                If
to the Company:

 

Cano Petroleum, Inc.

801 Cherry Street

Suite 3200

Fort Worth, Texas 76102

Telephone:            (817) 698-0900

Facsimile:               (817) 334-0222  

Attention:              Morris
B. Smith and Phillip Feiner

 

With
a copy to:

 

W. Bruce Newsome

Haynes and Boone, LLP

901 Main St., Suite 3100

Dallas, TX 75202

Telephone:            (214) 651-5119

Facsimile:               (214) 200-0636  

 

If
to Legal Counsel:

 

                                                Schulte Roth
& Zabel LLP

                                                919 Third
Avenue

                                                New York, New
York  10022

                                                Telephone:  (212) 756-2000

                                                Facsimile:  (212) 593-5955

                                                Attention:  Eleazer N. Klein, Esq.

 

If to a Buyer, to its
address and facsimile number set forth on the Schedule of Buyers attached
hereto, with copies to such Buyer’s representatives as set forth on the
Schedule of Buyers, or to such other address and/or facsimile number and/or to
the attention of such other Person as the recipient party has specified by
written notice given to each other party pursuant to this Section.  Written confirmation of receipt (A) given by
the recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender’s facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of 

 

17

 

such transmission or (C)
provided by a courier or overnight courier service shall be rebuttable evidence
of personal service, receipt by facsimile or receipt from a nationally
recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.

c.     Failure of any party to
exercise any right or remedy under this Agreement or otherwise, or delay by a
party in exercising such right or remedy, shall not operate as a waiver
thereof.

d.     All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of
the State of New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New
York.  Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting
in The City of New York, Borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. 
Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it
under this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. 
Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.  EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

e.     If any provision of this
Agreement is prohibited by law or otherwise determined to be invalid or
unenforceable by a court of competent jurisdiction, the provision that would
otherwise be prohibited, invalid or unenforceable shall be deemed amended to
apply to the broadest extent that it would be valid and enforceable, and the
invalidity or unenforceability of such provision shall not affect the validity
of the remaining provisions of this Agreement so long as this Agreement as so
modified continues to express, without material change, the original intentions
of the parties as to the subject matter hereof and the prohibited nature,
invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise
be conferred upon the parties.  The
parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

f.      This Agreement, the other
Transaction Documents (as defined in the Securities Purchase Agreement) and the
instruments referenced herein and therein constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and thereof.  There are no restrictions, promises,
warranties or undertakings, other than those set forth or 

 

 

18

 

referred
to herein and therein.  This Agreement,
the other Transaction Documents and the instruments referenced herein and
therein supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.

g.     Subject to the requirements
of Section 9, this Agreement shall inure to the benefit of and be binding upon
the permitted successors and assigns of each of the parties hereto.

h.     The headings in this
Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.

i.      This Agreement may be
executed in identical counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same agreement.  This Agreement, once executed by a party, may
be delivered to the other party hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.

j.      Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as any other party may reasonably request in order
to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.

k.     All consents and other
determinations required to be made by the Investors pursuant to this Agreement
shall be made, unless otherwise specified in this Agreement, by the Required
Holders.

l.      The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent and no rules of strict construction will be applied against
any party.

m.    This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.

n.     Notwithstanding anything to
the contrary contained herein, no Buyer or holder of Registrable Securities
shall be entitled to consequential, indirect or incidental damages
hereunder.  However, the foregoing shall
not in any way limit a Buyer or holder of Registrable Securities from being
reimbursed for its costs, fees or expenses, including, without limitation,
reasonable attorneys’ fees and disbursements in connection with any of its
rights and remedies hereunder.

o.     The obligations of each
Investor hereunder are several and not joint with the obligations of any other
Investor, and no provision of this Agreement is intended to confer any
obligations on any Investor vis-à-vis any other Investor.  Nothing contained herein, and no action taken
by any Investor pursuant hereto, shall be deemed to constitute the Investors as
a partnership, an association, a joint venture or any other kind of entity, or
create a 

 

19

 

presumption
that the Investors are in any way acting in concert or as a group with respect
to such obligations or the transactions contemplated herein.

* * * * * *

 

 

 

20

 

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Registration Rights
Agreement to be duly executed as of the date first written above.

	
  COMPANY:

  	
   

  
	
   

  	
   

  
	
  CANO PETROLEUM, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
  Name:

  	
  S. Jeffrey Johnson

  	
   

  
	
   

  	
  Title:

  	
  Chairman and CEO

  	
   

  
	
   

  	
   

  	
   

  	
   

  
					

 

 

21

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

 

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  CALM WATERS PARTNERSHIP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Richard S. Strong

  	
   

  
	
   

  	
  Name:

  	
  Richard S. Strong

  	
   

  
	
   

  	
  Title:

  	
  Managing Partner

  	
   

  
						

 

22

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

 

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  George
  WeisS Associates Inc. 

  Profit
  Sharing Plan

   

  IOU LIMITED PARTNERSHIP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Steven C. Kleinman

  	
   

  
	
   

  	
  Name:

  	
  Steven C. Kleinman

  	
   

  
	
   

  	
  Title:

  	
  Authorized Signatory

  	
   

  
							

 

23

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HARRY-ANNA
  INVESTMENT FUND, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	 

	
  By:

  	
  /s/
  Richard S. Spencer

  	
   

  	 

	
   

  	
  Name:

  	
  Richard
  S. Spencer

  	
   

  	 

	
   

  	
  Title:

  	
  Managing
  Member of

  	
   

  	 

	
   

  	
   

  	
  Westcliff
  Capital Management, LLC,

  	
   

  	 

	
   

  	
   

  	
  the
  Investment Advisor

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

										

 

24

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  COMPASS
  SAV, LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard
  S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing
  Member of

  	
   

  
	
   

  	
   

  	
  Westcliff
  Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the
  Investment Advisor

  	
   

  
							

 

25

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  US DOLLAR CLASS CELL OF

  	
   

  
	
  COMPASS OFFSHORE SAV PCC, LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  By:

  	
   

  	
  /s/ Richard S. Spencer

  	
   

  	 

	
   

  	
   

  	
  Name:

  	
  Richard S. Spencer

  	
   

  	 

	
   

  	
   

  	
  Title:

  	
  Managing Member of

  	
   

  	 

	
   

  	
   

  	
   

  	
  Westcliff Capital Management, LLC,

  	
   

  	 

	
   

  	
   

  	
   

  	
  the Investment Advisor

  	
   

  	 

											

 

26

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  QUEENSCARE

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard
  S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing
  Member of

  	
   

  
	
   

  	
   

  	
  Westcliff
  Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the
  Investment Advisor

  	
   

  
									

 

27

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Registration Rights
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ASHDON
  SELECT MANAGER TRUST —

  	
   

  
	
  ASHDON
  INVESTMENT, LLC MASTER TRUST

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard
  S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing
  Member of

  	
   

  
	
   

  	
   

  	
  Westcliff
  Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the
  Investment Advisor

  	
   

  
							

 

28

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  DAIMLER
  CHRYSLER CORPORATION

  	
   

  
	
  MASTER
  RETIREMENT TRUST

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard
  S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing
  Member of

  	
   

  
	
   

  	
   

  	
  Westcliff
  Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the
  Investment Advisor

  	
   

  
							

 

29

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  WESTCLIFF
  FUND, LP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard
  S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing
  Member of

  	
   

  
	
   

  	
   

  	
  Westcliff
  Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the
  General Partner

  	
   

  
								

 

30

 

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  UBS
  O’CONNOR LLC F/B/O:

  	
   

  
	
  O’CONNOR
  PIPES CORPORATE

  	
   

  
	
  STRATEGIES
  MASTER LIMITED

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Jeffrey Putman

  	
   

  
	
   

  	
  Name:

  	
  Jeffrey
  Putman

  	
   

  
	
   

  	
  Title:

  	
  Portfolio
  Manager

  	
   

  
									

 

31

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TRAPEZE
  CAPITAL CORP., on behalf of 

  managed
  accounts

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Adam Abramson

  	
   

  
	
   

  	
  Name:

  	
  Adam
  Abramson

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President

  	
   

  
								

 

32

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TRAPEZE
  ASSET MANAGEMENT INC., on behalf of managed accounts

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Adam Abramson

  	
   

  
	
   

  	
  Name:

  	
  Adam
  Abramson

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President

  	
   

  
									

 

33

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HUDSON
  BAY FUND LP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Yoav Roth

  	
   

  
	
   

  	
  Name:

  	
  Yoav
  Roth

  	
   

  
	
   

  	
  Title:

  	
  Principal
  and Portfolio Manager

  	
   

  
									

 

34

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HUDSON
  BAY OVERSEES FUND LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Yoav Roth

  	
   

  
	
   

  	
  Name:

  	
  Yoav
  Roth

  	
   

  
	
   

  	
  Title:

  	
  Principal
  and Portfolio Manager

  	
   

  
									

 

35

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  CRESTVIEW
  CAPITAL MASTER, LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  Crestview Capital Partners, LLC,

  	
   

  
	
   

  	
  its
  sole manager

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Stewart Flink

  	
   

  
	
   

  	
  Name:

  	
  Stewart
  Flink

  	
   

  
	
   

  	
  Title:

  	
  Manager

  	
   

  
	
   

  	
   

  	
   

  	
   

  
									

 

36

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARGONAUT
  VENTURES I, LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Jason Martin

  	
   

  
	
   

  	
  Name:

  	
  Jason
  Martin

  	
   

  
	
   

  	
  Title:

  	
  Authorized
  Agent

  	
   

  
									

 

37

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  CARLYLE
  MULTI-STRATEGY

  MASTER
  FUND

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Ralph Reynolds

  	
   

  
	
   

  	
  Name:

  	
  Ralph
  Reynolds

  	
   

  
	
   

  	
  Title:

  	
  Chief
  Investment Officer

  	
   

  
								

 

 

38

 

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  INDUSTRIAL
  HARVEST PARTNERS MASTER FUND, LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Todd McElroy

  	
   

  
	
   

  	
  Name:

  	
  Todd
  McElroy

  	
   

  
	
   

  	
  Title:

  	
  CFO,
  Investment Manager

  	
   

  
								

 

 

39

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  
	
  ING
  GLOBAL RESOURCES PORTFOLIO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Anthony Socci

  	
   

  
	
   

  	
  Name:

  	
  Anthony
  Socci

  	
   

  
	
   

  	
  Title:

  	
  VP
  Senior Research Analyst

  on behalf of ING Investment 

  Management
  Co.

  	
   

  
							

 

40

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  
	
  ING
  GLOBAL NATURAL RESOURCES FUND

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Anthony Socci

  	
   

  
	
   

  	
  Name:

  	
  Anthony
  Socci

  	
   

  
	
   

  	
  Title:

  	
  VP
  Senior Research Analyst

  on behalf of ING Investment 

  Management
  Co.

  	
   

  
						

 

41

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  
	
  ING
  RISK MANAGED NATURAL RESOURCES FUND

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Anthony Socci

  	
   

  
	
   

  	
  Name:

  	
  Anthony
  Socci

  	
   

  
	
   

  	
  Title:

  	
  VP
  Senior Research Analyst

  on behalf of ING Investment 

  Management
  Co.

  	
   

  
							

 

42

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  
	
  GLOBAL
  NATURAL RESOURCES TRUST FUND

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Anthony Socci

  	
   

  
	
   

  	
  Name:

  	
  Anthony
  Socci

  	
   

  
	
   

  	
  Title:

  	
  VP
  Senior Research Analyst

  on behalf of ING Investment 

  Management
  Co.

  	
   

  
							

 

43

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

 

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GLG
  NORTH AMERICAN OPPORTUNITY FUND

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  GLG
  Partners L.P., as investment manager

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  /s/
  Tim Kuschill

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Tim
  Kuschill

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Legal
  Counsel for GLG Partners L.P.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  /s/
  Victoria Parry

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Victoria
  Parry

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Senior
  Legal Counsel for GLG 

  Partners
  L.P.

  	
   

  
																		

 

 

44

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HARBOUR
  HOLDING LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Name:

  	
  Pamela
  A. Cavanaugh

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
								

 

45

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SKYLANDS
  SPECIAL INVESTMENT LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Name:

  	
  Pamela
  A. Cavanaugh

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President — Skylands Capital, LLC, Managing 

  Member
  of Skylands Special Investment LLC

  	
   

  
							

 

46

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SKYLANDS
  QUEST LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Name:

  	
  Pamela
  A. Cavanaugh

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President — Skylands Capital, LLC, Managing 

  Member
  of Skylands Quest LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
									

 

47

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SKYLANDS
  SPECIAL INVESTMENT II LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Name:

  	
  Pamela
  A. Cavanaugh

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President — Skylands Capital, LLC, Managing 

  Member
  of Skylands Special Investment II LLC

  	
   

  
							

 

 

48

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ENABLE
  GROWTH PARTNERSHIP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Brendan O’Neil

  	
   

  
	
   

  	
  Name:

  	
  Brendan
  O’Neil

  	
   

  
	
   

  	
  Title:

  	
  Principal
  and Portfolio Manager

  	
   

  
								

 

 

49

 

SCHEDULE OF BUYERS

 

 

	
  Buyer

  	
   

  	
  Address
  and

  Facsimile Number

  
	
  Calm Waters Partnership

  	
   

  	
  115 S. 84th
  Street, Suite 200

  Milwaukee, WI 53214

  
	
  George Weiss Associates
  Inc. Profit Sharing Plan

  	
   

  	
  One State Street, 20th
  Floor

  Hartford, CT 06103

  
	
  IOU Limited Partnership

  	
   

  	
  One State Street, 20th
  Floor

  Hartford, CT 06103

  
	
  Harry-Anna Investment Fund

  	
   

  	
  200 7th Avenue,
  Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  
	
  Compass SAV, LLC

  	
   

  	
  200 7th Avenue,
  Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  
	
  US Dollar Class Cell of
  Compass Offshore SAV PCC, Ltd.

  	
   

  	
  200 7th Avenue,
  Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  
	
  QueensCare

  	
   

  	
  200 7th Avenue,
  Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  
	
  Westcliff Fund, LP

  	
   

  	
  200 7th Avenue,
  Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  
	
  Ashdon Select Manager
  Trust — Ashdon Investment Management, LLC Master Trust

  	
   

  	
  200 7th Avenue,
  Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  
	
  Daimler Chrysler
  Corporation Master Retirement Trust

  	
   

  	
  200 7th Avenue,
  Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  
	
  UBS O’Connor LLC F/B/O:
  O’Connor PIPES Corporate Strategies Master Limited

  	
   

  	
  One North Wacker Dr.

  32nd Floor

  c/o UBS O’Connor

  Chicago, IL 60606

  Attn: Robert Murray

  

 

 

50

 

	
  Buyer

  	
   

  	
  Address
  and

  Facsimile Number

  
	
  Trapeze Capital Corp., on
  behalf of managed accounts Investor Company

  	
   

  	
  77 Bloor Street West

  2nd Floor

  Toronto, ON

  CANADA M5S1M2

  
	
  Trapeze Asset Management,
  Inc., on behalf of managed accounts Investor Company

  	
   

  	
  77 Bloor Street West

  2nd Floor

  Toronto, ON

  CANADA M5S1M2

  
	
  on behalf of managed
  accounts BMO Nesbitt Burns ITF Millenium Partners, LLP

  	
   

  	
  1 First Canadian Place

  35th Floor

  Toronto, ON

  CANADA M5X1H3

  
	
  on behalf of managed
  accounts Roytor & Co.

  	
   

  	
  200 Bay Street

  SL Level

  Toronto, ON

  CANADA M5J2J5

  
	
  Hudson Bay Fund LP

  	
   

  	
  120 Broadway

  40th Floor

  New York, NY 10271

  
	
  Hudson Bay Oversees Fund
  LTD.

  	
   

  	
  120 Broadway

  40th Floor

  New York, NY 10271

  
	
  Crestview Capital Funds

  	
   

  	
  95 Revere Drive, Suite A

  Northbrook, IL 60062

  
	
  Argonaut Ventures I, LLC

  	
   

  	
  6733 S. Yale

  Tulsa, OK 74136

  
	
  Carlyle Multi-Strategy
  Master Fund

  	
   

  	
  1177 Avenue of the
  Americas, 16th Floor

  c/o Carlyle-Blue Wave Partners Management, LP

  New York, NY 10036

  
	
  Industrial Harvest
  Partners Master Fund, Ltd.

  	
   

  	
  220 East 42nd
  Street

  29th Floor

  New York, NY 10017

  
	
  ING Global Resources
  Portfolio

  	
   

  	
  c/o ING Investment
  Management Company

  230 Park Avenue

  New York, NY 10169

  

 

51

	
  Buyer

  	
   

  	
  Address
  and

  Facsimile Number

  
	
  ING Global Natural
  Resources Fund

  	
   

  	
  c/o ING Investment
  Management Company

  230 Park Avenue

  New York, NY 10169

  
	
  ING Risk Managed Natural
  Resources Fund

  	
   

  	
  c/o ING Investment
  Management Company

  230 Park Avenue

  New York, NY 10169

  
	
  Global Natural Resources
  Trust Fund

  	
   

  	
  c/o ING Investment
  Management Company

  230 Park Avenue

  New York, NY 10169

  
	
  GLG North American
  Opportunity Fund

  	
   

  	
  Walker House

  87 Mary Street

  George Town

  Grand Cayman

  Cayman Islands KY1-9002

  

  c/o GLG Partners LP

  Attn: Legal Department

  One Curzon Street

  London, England W1J5HB

  
	
  Harbour Holdings Ltd.

  	
   

  	
  c/o Skylands Capital, LLC

  1200 N. Mayfair Road

  Suite 250

  Milwaukee, WI 53213

  
	
  Skylands Special
  Investment LLC.

  	
   

  	
  c/o Skylands Capital, LLC

  1200 N. Mayfair Road

  Suite 250

  Milwaukee, WI 53213

  
	
  Skylands Quest LLC.

  	
   

  	
  c/o Skylands Capital, LLC

  1200 N. Mayfair Road

  Suite 250

  Milwaukee, WI 53213

  
	
  Skylands Special
  Investment II LLC.

  	
   

  	
  c/o Skylands Capital, LLC

  1200 N. Mayfair Road

  Suite 250

  Milwaukee, WI 53213

  
	
  Enable Growth Partners LP

  	
   

  	
  One Ferry Building

  Suite 255

  San Francisco, CA 94111

  

 

52

 

EXHIBIT A

 

NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

 

 

              
    , 2007

 

 

Via FedEx

 

Interwest Transfer Company

1981 East Murray Holladay Rd., Suite 100

Salt Lake City, Utah 84117

ATTN:      Lorraine Smith

 

 

Re:     Cano Petroleum, Inc.

 

 

Ladies and Gentlemen:

 

We are counsel to Cano
Petroleum, Inc., a Delaware corporation (the “Company”), and have represented the Company in connection with
that certain Securities Purchase Agreement, dated as of October     ,
2007 (the “Securities  Purchase Agreement”), entered into by and
among the Company and the buyers named therein (collectively, the “Holders”) pursuant to which the Company
issued to the Holders its shares of the Company’s Common Stock, par value
$0.0001 per share (the “Common Stock”).  Pursuant to the Securities Purchase
Agreement, the Company also has entered into a Registration Rights Agreement
with the Holders (the “Registration Rights
Agreement”) pursuant to which the Company agreed, among other
things, to register the resale of the Registrable Securities (as defined in the
Registration Rights Agreement) under the Securities Act of 1933, as amended
(the “1933 Act”).  In connection with the Company’s obligations
under the Registration Rights Agreement, on               
    , 2007, the Company filed a Registration Statement on
Form S-3 (File No. 333-            )
(the “Registration Statement”)
with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities which names each
of the Holders as a selling stockholder thereunder.

 

In connection with the
foregoing, we advise you that a member of the SEC’s staff has advised us by
telephone that the SEC has entered an order declaring the Registration
Statement effective under the 1933 Act at         
P.M. EST on                   
     , 2007 and we have no knowledge, after
telephonic inquiry of a member of the SEC’s staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.

 

 

A-1

 

 

Subject to the specific
prohibitions contained in the Registration Rights Agreement regarding the
inability to use the Registration Statement under specific circumstances (the “Registration Statement Limitations”) and in reliance upon
the Holder’s representations and covenants in Section 2(g) of the Securities
Purchase Agreement, this letter
shall serve as our standing instruction to you that the shares of Common Stock
are freely transferable by the Holders pursuant to the Registration Statement
provided that the prospectus delivery requirements, if any, are complied with.  Subject to the Registration Statement
Limitations, you need not require further letters from us to effect any future
legend-free issuance or reissuance of shares of Common Stock to the Holders as
contemplated by the Company’s Transfer Agent Instructions dated October     ,
2007.  This letter shall serve as our
standing instruction with regard to this matter.

 

Very truly yours,

 

	
  HAYNES
  AND BOONE, LLP

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  W. Bruce Newsome

  	
   

  
				

 

 

cc:                [Buyers]

 

A-2

 

EXHIBIT B

 

SELLING
STOCKHOLDERS

The
shares of Common Stock being offered by the Selling Stockholders are those
previously issued to the Selling Stockholders. 
For additional information regarding the issuance of those shares of
Common Stock, see “Private Placement of Common Shares” above.  We are registering the shares of Common Stock
in order to permit the selling stockholders to offer the shares for resale from
time to time.  Except for [        ][Discuss
necessary relationships] and the ownership of the shares of Common Stock issued
pursuant to the Securities Purchase Agreement, the selling stockholders have
not had any material relationship with us within the past three years.

The
table below lists the Selling Stockholders and other information regarding the
beneficial ownership of the shares of Common Stock by each of the Selling
Stockholders.  The second column lists
the number of shares of Common Stock beneficially owned by each Selling
Stockholder, based on its ownership of the shares of Common Stock and any
securities exercisable into or convertible into Common Stock, as of                      ,
200  .

The
third column lists the shares of Common Stock being offered by this prospectus
by the Selling Stockholders.

In
accordance with the terms of a registration rights agreement with the selling
stockholders, this prospectus generally covers the resale of 100% of the number
of shares of Common Stock issued as of the trading day immediately preceding
the date the registration statement is initially filed with the SEC.  The fourth column assumes
the sale of all of the shares offered by the Selling Stockholders pursuant to
this prospectus.

The
Selling Stockholders may sell all, some or none of their shares in this
offering.  See “Plan of Distribution.”

 

 

B - 1

	
  

  

  Name of Selling Stockholder

  	
   

  	
  Number
  of Shares Beneficially Owned Prior to Offering

  	
   

  	
  Maximum
  Number of 

  Shares to be Sold Pursuant
  

  to this
  Prospectus

  	
   

  	
  Number of Shares
  Beneficially Owned After Offering

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Buyer] (1)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Other
  Buyers]

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

(1)

 

B - 2

 

PLAN OF
DISTRIBUTION

We
are registering the shares of Common Stock previously issued to permit the
resale of these shares of Common Stock by the holders of the Common Stock from
time to time after the date of this prospectus. 
We will not receive any of the proceeds from the sale by the selling
stockholders of the shares of Common Stock. 
We will bear all fees and expenses incident to our obligation to
register the shares of Common Stock.

The
selling stockholders may sell all or a portion of the shares of Common Stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents.  If the shares of Common Stock are sold
through underwriters or broker-dealers, the selling stockholders will be
responsible for underwriting discounts or commissions or agent’s
commissions.  The shares of Common Stock
may be sold in one or more transactions at fixed prices, at prevailing market
prices at the time of the sale, at varying prices determined at the time of
sale, or at negotiated prices.  These
sales may be effected in transactions, which may involve crosses or block
transactions,

•                  on any national securities
exchange or quotation service on which the securities may be listed or quoted
at the time of sale;

•                  in the over-the-counter
market;

•                  in transactions otherwise
than on these exchanges or systems or in the over-the-counter market;

•                  through the writing of
options, whether such options are listed on an options exchange or otherwise;

•                  ordinary brokerage
transactions and transactions in which the broker-dealer solicits purchasers;

•                  block trades in which the
broker-dealer will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction;

•                  purchases by a broker-dealer
as principal and resale by the broker-dealer for its account;

•                  an exchange distribution in
accordance with the rules of the applicable exchange;

•                  privately negotiated
transactions;

•                  short sales;

•                  sales pursuant to Rule 144;

•                  broker-dealers may agree
with the selling stockholders to sell a specified number of such shares at a
stipulated price per share;

 

1

 

•                  a combination of any such
methods of sale; and

•                  any other method permitted
pursuant to applicable law.

If
the selling stockholders effect such transactions by selling shares of Common
Stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of the shares of Common Stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved).  In connection with sales of the shares of
Common Stock or otherwise, the selling stockholders may enter into hedging transactions
with broker-dealers, which may in turn engage in short sales of the shares of
Common Stock in the course of hedging in positions they assume.  The selling stockholders may also sell shares
of Common Stock short and deliver shares of Common Stock covered by this
prospectus to close out short positions and to return borrowed shares in
connection with such short sales.  The
selling stockholders may also loan or pledge shares of Common Stock to
broker-dealers that in turn may sell such shares.

The
selling stockholders may pledge or grant a security interest in some or all of
the shares of Common Stock owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the shares of Common Stock from time to time pursuant to this
prospectus or any amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933, as amended, amending, if
necessary, the list of selling stockholders to include, pursuant to prospectus
amendment or prospectus supplement, the pledgee, transferee or other successors
in interest as selling stockholders under this prospectus.  The selling stockholders also may transfer
and donate the shares of Common Stock in other circumstances in which case the
transferees, donees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus.

The
selling stockholders and any broker-dealer participating in the distribution of
the shares of Common Stock may be deemed to be “underwriters” within the
meaning of the Securities Act, and any commission paid, or any discounts or
concessions allowed to, any such broker-dealer may be deemed to be underwriting
commissions or discounts under the Securities Act.  At the time a particular offering of the
shares of Common Stock is made, a prospectus supplement, if required, will be
distributed which will set forth the aggregate amount of shares of Common Stock
being offered and the terms of the offering, including the name or names of any
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to broker-dealers.

Under
the securities laws of some states, the shares of Common Stock may be sold in
such states only through registered or licensed brokers or dealers.  In addition, in some states the shares of
Common Stock may not be sold unless such shares have been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is complied with.

 

2

 

There
can be no assurance that any selling stockholder will sell any or all of the
shares of Common Stock registered pursuant to the registration statement, of
which this prospectus forms a part.

The
selling stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of Common Stock by the selling stockholders
and any other participating person. 
Regulation M may also restrict the ability of any person engaged in the
distribution of the shares of Common Stock to engage in market-making
activities with respect to the shares of Common Stock.  All of the foregoing may affect the
marketability of the shares of Common Stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of
Common Stock.

We
will pay all expenses of the registration of the shares of Common Stock
pursuant to the registration rights agreement, estimated to be
$[     ] in total, including, without limitation,
Securities and Exchange Commission filing fees and expenses of compliance with
state securities or “blue sky” laws; provided, however, that a selling
stockholder will pay all underwriting discounts and selling commissions, if
any.  We will indemnify the selling
stockholders against liabilities, including some liabilities under the
Securities Act, in accordance with the registration rights agreements, or the
selling stockholders will be entitled to contribution.  We may be indemnified by the selling
stockholders against civil liabilities, including liabilities under the
Securities Act, that may arise from any written information furnished to us by
the selling stockholder specifically for use in this prospectus, in accordance
with the related registration rights agreement, or we may be entitled to
contribution.

Once
sold under the registration statement, of which this prospectus forms a part,
the shares of Common Stock will be freely tradable in the hands of persons
other than our affiliates.

 

 

 

 

3Exhibit
10.1

SECURITIES PURCHASE AGREEMENT

SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of November 2, 2007,
by and among Cano Petroleum, Inc., a Delaware corporation, with headquarters
located at 801 Cherry St., Suite 3200, Fort Worth, Texas 76102 (the “Company”), and the investors listed on the
Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

WHEREAS:

A.   The
Company and each Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the “1933
Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”)
under the 1933 Act.

B.   Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, that aggregate number of shares of the
common stock of the Company, par value $0.0001 per share (the “Common Stock”) set forth opposite such Buyer’s name on the
Schedule of Buyers (which aggregate amount for all Buyers shall be a maximum of
3,500,000 shares of Common Stock and shall collectively be referred to herein
as the “Common Shares”).

C.            Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in the
form attached hereto as Exhibit A (the “Registration Rights Agreement”), pursuant to which the Company
has agreed to provide certain registration rights with respect to the
Registrable Securities (as defined in the Registration Rights Agreement), under
the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.

NOW, THEREFORE, the Company and each Buyer
hereby agree as follows:

1.             PURCHASE AND SALE OF COMMON SHARES.

(a)           Common
Shares.  Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to each Buyer, and each Buyer severally, but not jointly,
agrees to purchase from the Company on the Closing Date (as defined below), the
number of Common Shares as is set forth opposite such Buyer’s name on the
Schedule of Buyers.

(b)           Closing.  The closing (the “Closing”) of the purchase of the Common Shares by the Buyers
shall occur at the offices of Haynes and Boone, LLP, 901 Main St,. Suite 3100,
Dallas, Texas 75202.  The date and time
of the Closing (the “Closing Date”)
shall be 10:00 a.m., New York City Time, on the date after the notification of
satisfaction (or waiver) of the conditions to the Closing set forth in Sections
6 and 7 below (or such other date and time as is mutually agreed to by the
Company and each Buyer).

 

1

 

(c)           Purchase
Price.  The aggregate purchase price
for the Common Shares to be purchased by each Buyer (the “Purchase
Price”) shall be the amount set forth opposite such Buyer’s name on
the Schedule of Buyers.  Each Buyer shall
pay $7.15 for each Common Share  to be
purchased by such Buyer at the Closing.

(d)           Form
of Payment.  On the Closing Date, (A)
each Buyer shall pay its portion of the Purchase Price to the Company for the
Common Shares to be issued and sold to such Buyer at the Closing, by wire
transfer of immediately available funds in accordance with the Company’s
written wire instructions and (B) the Company shall deliver to each Buyer
one or more stock certificates, free and clear of all restrictive legends
(except as expressly provided in Section 2(h) hereof), evidencing the number of
Common Shares as is set forth opposite such Buyer’s name on the Schedule of
Buyers, each duly executed on behalf of the Company and registered on the
transfer books of the Company in the name of such Buyer or its designee.

2.             BUYER’S REPRESENTATIONS AND WARRANTIES.

Each
Buyer, severally and not jointly, represents and warrants with respect to only
itself that:

(a)           Organization;
Authority.  Such Buyer is an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents (as defined below) to which it is a party and otherwise to carry out
its obligations hereunder and thereunder.

(b)           No
Public Sale or Distribution.  Such
Buyer is acquiring the Common Shares for its own account and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, such Buyer does
not agree to hold any of the Common Shares for any minimum or other specific
term and reserves the right to dispose of the Common Shares at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.  Such Buyer is acquiring
the Common Shares hereunder in the ordinary course of its business.  Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Common Shares.

(c)           Accredited
Investor Status.  Such Buyer is an “accredited
investor” as that term is defined in Rule 501(a) of Regulation D.

(d)           Reliance
on Exemptions.  Such Buyer
understands that the Common Shares are being offered and sold to it in reliance
on specific exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying in part upon
the truth and accuracy of, and such Buyer’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the Common Shares.

 

2

 

(e)           Information.  Such Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Common Shares which have been requested by such Buyer.  Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company.  Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer’s right to rely on the
Company’s representations and warranties contained herein.  Such Buyer understands that its investment in
the Common Shares involves a high degree of risk.  Such Buyer has sought such accounting, legal
and tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Common Shares.

(f)            No
Governmental Review.  Such Buyer
understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation or
endorsement of the Common Shares or the fairness or suitability of the
investment in the Common Shares nor have such authorities passed upon or
endorsed the merits of the offering of the Common Shares.

(g)           Transfer or
Resale.  Such Buyer understands that
except as provided in the Registration Rights Agreement: (i) the Common Shares
have not been and are not being registered under the 1933 Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder and sold pursuant to an effective
registration statement, (B) such Buyer shall have delivered to the Company an
opinion of a law firm reasonably acceptable to the Company (with Schulte Roth
& Zabel LLP being deemed acceptable), in a reasonably acceptable form, to
the effect that such Common Shares to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company with reasonable assurance that such
Common Shares can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A promulgated under the 1933 Act, as amended (or a successor rule thereto)
(collectively, “Rule 144”); (ii)
any sale of the Common Shares made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Common Shares under circumstances in which the
seller (or the individual, limited liability company, partnership, joint
venture, corporation, trust, 
unincorporated organization and government or any department or agency
thereof (collectively, a “Person”)
through whom the sale is made) may be deemed to be an underwriter (as that term
is defined in the 1933 Act) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder; and
(iii) neither the Company nor any other Person is under any obligation to
register the Common Shares under the 1933 Act or any state securities laws or
to comply with the terms and conditions of any exemption thereunder.  Notwithstanding the foregoing, the Common
Shares may be pledged in connection with a bona fide margin account or other
loan secured by the Common Shares and such pledge of Common Shares shall not be
deemed to be a transfer, sale or assignment of the Common Shares hereunder, and
no Buyer effecting a pledge of Common Shares shall be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement or any other Transaction Document (as defined
below), including, without limitation, this Section 2(g); provided, that in
order to make any sale, transfer or assignment of Common Shares, such 

 

3

 

Buyer and its pledgee shall make such disposition in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act.

(h)           Legends.  Such Buyer understands that certificates or
other instruments representing the Common Shares shall bear, until such time as
the resale of the Common Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, except as set forth below,
any legend as required by the “blue sky” laws of any state and a restrictive
legend in substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):

THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF A LAW FIRM REASONABLY ACCEPTABLE TO THE COMPANY
(WITH SCHULTE, ROTH & ZABEL LLP BEING DEEMED ACCEPTABLE), IN A REASONABLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID ACT. 
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED PURSUANT
TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.

The
legend set forth above shall be removed and the Company shall, at such Buyer’s
election either  (x) issue a certificate
without such legend to the holder of the Common Shares upon which it is stamped
or (y) issue to such holder by electronic delivery at the applicable balance
account at The Depository Trust Company (“DTC”),
if, unless otherwise required by state securities laws, (i) such Common Shares
are registered for resale under the 1933 Act, (ii) in connection with a sale,
assignment or other transfer, such holder provides the Company with an opinion
of a law firm reasonably acceptable to the Company (with Schulte, Roth &
Zabel LLP being deemed acceptable), in a reasonably acceptable form, to the
effect that such sale, assignment or transfer of the Common Shares may be made
without registration under the applicable requirements of the 1933 Act and that
such legend is no longer required, or (iii) such holder provides the Company
with reasonable assurance that the Common Shares can be sold, assigned or
transferred pursuant to Rule 144(k).

(i)            Validity;
Enforcement.  This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of such Buyer and shall constitute the legal, valid and
binding obligations of such Buyer enforceable against such Buyer in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or to applicable bankruptcy, insolvency, 

 

4

 

reorganization, moratorium, liquidation and other similar laws relating
to, or affecting generally, the enforcement of applicable creditors’ rights and
remedies.

(j)            No
Conflicts.  The execution, delivery
and performance by such Buyer of this Agreement and the Registration Rights
Agreement and the consummation by such Buyer of the transactions contemplated
hereby and thereby will not (i) result in a violation of the organizational
documents of such Buyer or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such Buyer is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment  or decree (including federal
and state securities laws) applicable to such Buyer, except in the case of
clauses (ii) and (iii) above, for such conflicts, defaults, rights or
violations which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of such Buyer to
perform its obligations hereunder.

(k)           Residency.  Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers.

(l)            Certain
Trading Activities.  Other than with
respect to the transactions contemplated herein, since the time that such Buyer
was first contacted by the Company, any of the Agents or any other Person
regarding this investment in the Company neither the Buyer nor any Affiliate
(as defined by Rule 405 promulgated pursuant to the 1933 Act)of such Buyer
which (x) had knowledge of the transactions contemplated hereby, (y) has or
shares discretion relating to such Buyer’s investments or trading or
information concerning such Buyer’s investments and (z) is subject to such
Buyer’s review or input concerning such Affiliate’s investments or trading
(collectively, “Trading Affiliates”)
has directly or indirectly, nor has any Person acting on behalf of or pursuant
to any understanding with such Buyer or Trading Affiliate, effected or agreed
to effect any purchase or sale of the securities of the Company.  Such Buyer hereby covenants and agrees not
to, and shall cause its Trading Affiliates not to, engage, directly or
indirectly, in any purchase or sale of the securities of the Company or
involving the Company’s securities during the period from the date hereof until
such time as (i) the Second Press Release is made as described in Section 4(g)
hereof or (ii) this Agreement is terminated in full pursuant to Section 8
hereof.

3.             REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The
Company represents and warrants to each of the Buyers that:

(a)           Organization
and Qualification.  The Company and
its “Subsidiaries” (which for purposes of
this Agreement means any joint venture or any entity in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest) are entities duly organized and validly existing and in good standing
under the laws of the jurisdiction in which they are formed, and have the
requisite power and authorization to own their properties and to carry on their
business as now being conducted.  Each of
the Company and its Subsidiaries is duly qualified as a foreign entity to do
business and is in good standing in every jurisdiction in which its ownership
of property or the nature of the business 

 

5

 

conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not
reasonably be expected to have a Material Adverse Effect.  As used in this Agreement, “Material Adverse Effect” means any material
adverse effect on the business, properties, assets, operations, results of
operations or condition (financial or otherwise) of the Company, its
Subsidiaries, individually or taken as a whole, or on the transactions
contemplated hereby or in the other Transaction Documents or by the agreements
and instruments to be entered into in connection herewith or therewith, or on
the authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). 
The Company has no Subsidiaries except as set forth on Schedule 3(a).

(b)           Authorization;
Enforcement; Validity.  The Company
has the requisite power and authority to enter into and perform its obligations
under this Agreement, the Registration Rights Agreement, the Irrevocable
Transfer Agent Instructions (as defined in Section 5(b)) and each of the other
agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the “Transaction Documents”) and to issue the
Common Shares in accordance with the terms hereof and thereof.  The execution and delivery of the Transaction
Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including, without limitation,
the issuance of the Common Shares, have been duly authorized by the Company’s
board of directors and (other than the filing with the SEC of a Form D and one
or more Registration Statements in accordance with the requirements of the
Registration Rights Agreement and any other filings as may be required by any
state securities agencies or by the Principle Market (as defined below)) no
further filing, consent, or authorization is required by the Company, its board
of directors or its stockholders.  This
Agreement and the other Transaction Documents of even date herewith have been
duly executed and delivered by the Company, and constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.

(c)           Issuance
of Common Shares The issuance of the Common Shares is duly authorized and
upon issuance in accordance with the terms of the Transaction Documents, the
Common Shares shall be validly issued and free from all taxes, liens and
charges with respect to the issue thereof and any and all encumbrances and
restrictions (other than those created by the Buyers), except for restrictions
on transfer set forth in the Transaction Documents or imposed by applicable
securities laws.  Subject to the
representations and warranties of the Buyers in this Agreement, the offer and
issuance by the Company of the Common Shares is exempt from registration under
the 1933 Act.

(d)           No
Conflicts.  Except as set forth on Schedule
3(d), the execution, delivery and performance of the Transaction Documents
by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Common Shares) will not (i) result in a violation of the Certificate of
Incorporation (as defined in Section 3(q)) of the Company or 

 

6

 

any certificate of incorporation, certificate of formation, any
certificate of designations or other constituent document of any of its
Subsidiaries, any capital stock of the Company or Bylaws (as defined in Section
3(q)) certificates of designations of the Company or any of its Subsidiaries
bylaws or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the American Stock
Exchange (the “Principal Market”)
applicable to the Company or any of its Subsidiaries or by which any property
or asset of the Company or any of its Subsidiaries is bound or affected, which
with regard to subsections (ii) and (iii) would reasonably be expected to cause
a Material Adverse Effect.

(e)           Consents.  Except as set forth on Schedule 3(e),
neither the Company nor any of its Subsidiaries is required to obtain any
consent, authorization or order of, or make any filing or registration with,
any court, governmental agency or any regulatory or self-regulatory agency or
any other Person in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents, in each case in
accordance with the terms hereof or thereof. 
All consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence will be
obtained or effected on or prior to the Closing Date, and the Company and its
Subsidiaries are unaware of any facts or circumstances which might prevent the
Company from obtaining or effecting any of the registration, application or
filings pursuant to the preceding sentence. 
The Company is not in violation of the requirements of the Principal
Market and has no knowledge of any facts which would reasonably lead to
delisting or suspension of the Common Stock in the foreseeable future.

(f)            Acknowledgment
Regarding Buyer’s Purchase of Common Shares.  The Company acknowledges and agrees that each
Buyer is acting solely in the capacity of arm’s length purchaser with respect
to the Transaction Documents and the transactions contemplated hereby and
thereby and except as set forth on Schedule 3(f), that no Buyer is (i)
an officer or director of the Company, (ii) an “affiliate” of the Company or
any of its Subsidiaries (as defined in Rule 144) or (iii) to the knowledge of
the Company, a “beneficial owner” of more than 10% of the shares of Common
Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange Act of
1934, as amended (the “1934 Act”)).  The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company or any of
its Subsidiaries (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer’s purchase of the Common Shares.  The Company further represents to each Buyer
that the Company’s decision to enter into the Transaction Documents has been based
solely on the independent evaluation by the Company and its representatives.

(g)           No
General Solicitation; Placement Agent’s Fees.  Neither the Company, nor any of its
Subsidiaries or affiliates, nor any Person acting on its or their behalf, 

 

7

 

has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of
the Common Shares.  The Company shall be
responsible for the payment of any placement agent’s fees, financial advisory
fees, or brokers’ commissions (other than for persons engaged by any Buyer or
its investment advisor) relating to or arising out of the transactions
contemplated hereby.  The Company shall
pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, attorney’s fees and out-of-pocket expenses)
arising in connection with any such claim. 
The Company acknowledges that it has engaged Coker & Palmer, Inc.,
C.K Cooper & Company and Ladenburg Thalmann & Co., Inc. as placement
agents (collectively, the “Agent”)
in connection with the sale of the Common Shares.  Other than the Agent, neither the Company nor
any of its Subsidiaries has engaged any placement agent or other agent in
connection with the sale of the Common Shares.

(h)           No
Integrated Offering.  None of the
Company, its Subsidiaries, any of their affiliates, and any Person acting on
their behalf has, directly or indirectly, made any offers or sales of any security
or solicited any offers to buy any security, under circumstances that would
require registration of any of the Common Shares under the 1933 Act or cause
this offering of the Common Shares to be integrated with prior offerings by the
Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
any exchange or automated quotation system on which any of the securities of
the Company are listed or designated. 
None of the Company, its Subsidiaries, their affiliates and any Person
acting on their behalf will take any action or steps referred to in the
preceding sentence that would require registration of any of the Common Shares
under the 1933 Act or cause the offering of the Common Shares to be integrated
with other offerings.

(i)            Application
of Takeover Protections; Rights Agreement. 
The Company and its board of directors have taken all necessary action,
if any, in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Certificate of Incorporation
or any certificates of designations or the laws of the jurisdiction of its formation
or incorporation which is or could become applicable to any Buyer as a result
of the transactions contemplated by this Agreement, including, without
limitation, the Company’s issuance of the Common Shares and any Buyer’s
ownership of the Common Shares.  The
Company has not adopted a stockholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock or a change
in control of the Company.

(j)     SEC Documents;
Financial Statements.  During the two
(2) years prior to the date hereof, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the 1934 Act (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements, notes and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the “SEC Documents”).  The Company has delivered to the Buyers or
their respective representatives true, correct and complete copies of each of
the SEC Documents not available on the EDGAR system that have been requested by
each Buyer.  As of their respective
dates, the SEC Documents complied in all material 

 

8

 

respects
with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.  As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto as in effect as of the time
of filing.  Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).  No other information
provided by or on behalf of the Company to the Buyers which is not included in
the SEC Documents, including, without limitation, information referred to in
Section 2(e) of this Agreement, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading.  The Company
is eligible to use Form S-3 to register the Registrable Securities (as such
term is defined in the Registration Rights Agreement) for resale by the Buyers
as contemplated by the Registration Rights Agreement, according to the
eligibility requirements for the use of Form S-3 in transactions involving
secondary offerings as set forth in General Instructions I.A and II.B.3 of Form
S-3.

(k)    Absence of Certain
Changes.  Except as disclosed in Schedule
3(k), since June 30, 2007, nothing has occurred that could reasonably be
expected to have a Material Adverse Effect. 
Neither the Company nor any of its Subsidiaries has taken any steps to
seek protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of any fact which
would reasonably lead a creditor to do so. 
The Company and its Subsidiaries, individually and on a consolidated
basis, are not as of the date hereof, and after giving effect to the
transactions contemplated hereby to occur at the Closing will not, be Insolvent
(as defined below).  For purposes of this
Section 3(k), “Insolvent” means,
with respect to any Person (as defined in Section 3(s)) (i) the present fair
saleable value of such Person’s assets is less than the amount required to pay
such Person’s total Indebtedness (as defined in Section 3(s)), (ii) such Person
is unable to pay its debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured, (iii)
such Person intends to incur or believes that it will incur debts that would be
beyond its ability to pay as such debts mature or (iv) such Person has
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be conducted.

(l)     No Undisclosed Events,
Liabilities, Developments or Circumstances. 
No event, liability, development or circumstance has occurred or exists,
or is contemplated to occur with respect to the Company, its Subsidiaries or
their respective business, properties, 

 

9

 

prospects,
operations or financial condition, that would be required to be disclosed by
the Company under applicable securities laws on a registration statement on
Form S-1 filed with the SEC relating to an issuance and sale by the Company of
its Common Stock and which has not been publicly announced.

(m)   Conduct of Business;
Regulatory Permits.  Neither the
Company nor its Subsidiaries is in violation of any term of or in default under
its Certificate of Incorporation. any certificate of designation, preferences
or rights of any outstanding series of preferred stock of the Company or Bylaws
or their organizational charter or certificate of incorporation or bylaws,
respectively.  Neither the Company nor
any of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except in all cases for
possible violations which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.  Without limiting the generality of the
foregoing, the Company is not in violation of any of the rules, regulations or
requirements of the Principal Market and has no knowledge of any facts or
circumstances that would reasonably lead to delisting or suspension of the
Common Stock by the Principal Market in the foreseeable future.  Since May 5, 2005, (i) the Common Stock has
been designated for quotation on the Principal Market, (ii) trading in the
Common Stock has not been suspended by the SEC or the Principal Market and
(iii) the Company has received no communication, written or oral, from the SEC
or the Principal Market regarding the suspension or delisting of the Common
Stock from the Principal Market.  The
Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate regulatory authorities necessary to conduct
their respective businesses, except where the failure to possess such
certificates, authorizations or permits would not have, individually or in the
aggregate, a Material Adverse Effect, and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.

(n)    Foreign Corrupt
Practices.  Neither the Company nor
any of its Subsidiaries nor any director, officer, agent, employee or other
Person acting on behalf of the Company or any of its Subsidiaries has, in the
course of its actions for, or on behalf of, the Company or any of its
Subsidiaries (i) used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; (ii)
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (iii) violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.

(o)    Sarbanes-Oxley Act.  The Company is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations
promulgated by the SEC thereunder that are effective as of the date hereof.

(p)    Transactions With
Affiliates.  Except as set forth in
the SEC Documents filed at least ten (10) days prior to the date hereof or as
disclosed on Schedule 3(p), none of 

 

10

 

the
officers, directors or employees of the Company or any of its Subsidiaries is
presently a party to any transaction with the Company or any of its
Subsidiaries (other than for ordinary course services as employees, officers or
directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
such officer, director or employee or, to the knowledge of the Company or any
of its Subsidiaries, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.

(q)    Equity Capitalization.  As of the date hereof, the authorized capital
stock of the Company consists of (i) 100,000,000 shares of Common Stock, of
which as of the date hereof, 33,482,217 are issued and outstanding and
12,402,722 shares are reserved for issuance pursuant to securities exercisable
or exchangeable for, or convertible into, shares of Common Stock and (ii)
5,000,000 shares of preferred stock of which, as of the date hereof, 47,116 are
designated as Series D Convertible Preferred Stock and are issued and
outstanding.  All of such outstanding
shares have been, or upon issuance will be, validly issued and are fully paid
and nonassessable.  Except as disclosed
in the SEC Documents or on Schedule 3(q): (i) none of the Company’s capital
stock is subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company; (ii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional capital stock of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any capital stock of the Company or any of its
Subsidiaries; (iii) there are no outstanding debt securities, notes, credit
agreements, credit facilities or other agreements, documents or instruments
evidencing Indebtedness (as defined in Section 3(s)) of the Company or any of
its Subsidiaries or by which the Company or any of its Subsidiaries is or may
become bound; (iv) there are no financing statements securing obligations in
any material amounts, either singly or in the aggregate, filed in connection
with the Company or any of its Subsidiaries; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act that are not
currently registered (except pursuant to the Registration Rights Agreement);
(vi) there are no outstanding securities or instruments of the Company or any
of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to redeem a
security of the Company or any of its Subsidiaries; (vii) there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Common Shares; (viii) the Company does
not have any stock appreciation rights or “phantom stock” plans or agreements
or any similar plan or agreement; and (ix) the Company and its Subsidiaries
have no liabilities or obligations required to be disclosed in the SEC
Documents but not so disclosed in the SEC Documents, other than those incurred
in the ordinary course of the Company’s or its Subsidiaries’ respective
businesses.  The Company has furnished to
the Buyers true, correct and complete copies of the Company’s Certificate of
Incorporation, as amended and as in 

 

11

 

effect
on the date hereof (the “Certificate of
Incorporation”), and the Company’s Bylaws, as amended and as in
effect on the date hereof (the “Bylaws”), and
the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof in
respect thereto.

(r)     [RESERVED]

(s)    Indebtedness and Other
Contracts.  Except as set forth the
SEC Documents, neither the Company nor any of its Subsidiaries (i) has any
outstanding Indebtedness (as defined below), (ii) is a party to any contract,
agreement or instrument, the violation of which, or default under which, by the
other party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in material violation
of any term of or in material default under any material contract, agreement or
instrument relating to any Indebtedness, or (iv) is a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company’s officers, has or is expected to have a
Material Adverse Effect.  For purposes of
this Agreement:  (x) “Indebtedness” of any Person means, without
duplication (A) all indebtedness for borrowed money, (B) all obligations
issued, undertaken or assumed as the deferred purchase price of property or
services (including, without limitation, “capital leases” in accordance with
generally accepted accounting principles) (other than trade payables entered
into in the ordinary course of business), (C) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and other similar
instruments, (D) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses, (E) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to any
property or assets acquired with the proceeds of such indebtedness (even though
the rights and remedies of the seller or bank under such agreement in the event
of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment
of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) “Contingent Obligation”
means, as to any Person, any direct or indirect liability, contingent or
otherwise, of that Person with respect to any indebtedness, lease, dividend or
other obligation of another Person if the primary purpose or intent of the
Person incurring such liability, or the primary effect thereof, is to provide
assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such liability will be protected (in whole or in part)
against loss with respect thereto; and (z) “Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.

 

 

12

 

(t)     Absence of Litigation.  Except as set forth in Schedule 3(t),
there is no action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries, the Common Stock
or any of the Company’s Subsidiaries or any of the Company’s or its
Subsidiaries’ officers or directors, whether of a civil or criminal nature or
otherwise.

(u)    Insurance.  The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged.  Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any reason
to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not
have a Material Adverse Effect.

(v)    Employee Relations.  (i) 
Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or employs any member of a union.  The Company and its Subsidiaries believe that
their relations with their employees are good. 
No executive officer of the Company or any of its Subsidiaries (as
defined in Rule 501(f) of the 1933 Act) has notified the Company or any such
Subsidiary that such officer intends to leave the Company or any such Subsidiary
or otherwise terminate such officer’s employment with the Company or any such
Subsidiary.  No executive officer of the
Company or any of its Subsidiaries is, or is now expected to be, in violation
of any material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing matters.

(ii)           The Company and
its Subsidiaries are in compliance with all federal, state, local and foreign
laws and regulations respecting labor, employment and employment practices and
benefits, terms and conditions of employment and wages and hours, except where
failure to be in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.

(w)   Title.  Except as set forth on Schedule 3(w),
the Company and its Subsidiaries have (i) good and marketable title in fee
simple to all real property other than oil and gas interests, if any, (ii) good
and indefeasible title to its oil and gas interests and (iii) good and
marketable title to all personal property owned by them which is material to
the business of the Company and its Subsidiaries, in each case free and clear
of all liens, encumbrances and defects except such as do not materially affect
the value of such property or interests and do not interfere with the use made
and proposed to be made of such property or interests by the Company and any of
its Subsidiaries.   Any real property and
facilities held under lease by the Company or any of its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere 

 

13

 

with
the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.

(x)    Intellectual Property
Rights.  The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, original works of authorship, trade secrets and other
intellectual property rights and all applications related thereto (“Intellectual Property Rights”) necessary to
conduct their respective businesses as now conducted except where the failure
to so own or possess would not reasonably be expected to result in a Material
Adverse Effect.  None of the Company’s or
its Subsidiaries’ Intellectual Property Rights have expired, terminated or been
abandoned, or are expected to expire, terminate or be abandoned, within three
years from the date of this Agreement. 
The Company does not have any knowledge of any infringement by the
Company or any of its Subsidiaries of Intellectual Property Rights of others.  There is no claim, action or proceeding being
made or brought, or to the knowledge of the Company, being threatened, against
the Company or any of its Subsidiaries regarding its Intellectual Property
Rights.  The Company is unaware of any
facts or circumstances which might give rise to any of the foregoing
infringements or claims, actions or proceedings.  The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property Rights.

(y)    Environmental Laws.  The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. 
The term “Environmental Laws”
means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”)  into
the environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated or approved
thereunder.

(z)    Tax Status.  The Company and each of its Subsidiaries (i)
has made or filed all foreign, federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject, (ii) has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and (iii)
has set aside on its books provision reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports or declarations
apply.  There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim.

 

14

 

(aa)  Internal Accounting and
Disclosure Controls.  The Company and
each of its Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management’s
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference.  The Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-14
under the 1934 Act) that are effective in ensuring that information required to
be disclosed by the Company in the reports that it files or submits under the
1934 Act is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed in to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is accumulated and communicated to the Company’s management,
including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions
regarding required disclosure.  Since
July 1, 2007, neither the Company nor any of its Subsidiaries have received any
notice or correspondence from any accountant relating to any potential material
weakness in any part of the system of internal accounting controls of the
Company or any of its Subsidiaries, and there have been no disagreements
between the Company and its independent auditors.

(bb) Off Balance Sheet
Arrangements.  There is no material
transaction, arrangement, or other relationship between the Company and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its 1934 Act filings and is not so disclosed.

(cc)  Investment Company Status.  The Company is not, and upon consummation of
the sale of the Common Shares will not be, an “investment company,” a company
controlled by an “investment company” or an “affiliated person” of, or “promoter”
or “principal underwriter” for, an “investment company” as such terms are
defined in the Investment Company Act of 
1940, as amended.

(dd) Transfer Taxes.  On the Closing Date, all stock transfer or
other taxes (other than income or similar taxes) which are required to be paid
in connection with the sale and transfer of the Common Shares to be sold to
each Buyer hereunder will be, or will have been, fully paid or provided for by
the Company, and all laws imposing such taxes will be or will have been
complied with.

(ee)  Manipulation of Price.  The Company has not, and to its knowledge no
one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of any of
the Common Shares sold in this Agreement, (ii) sold, bid for, purchased, or
paid any compensation for soliciting purchases of, any of the Common 

 

15

 

Shares,
or (iii) paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.

(ff)   No Side Arrangements.  Neither the Company nor any of the Company’s
directors, officers, Subsidiaries or any of the Company’s or their Subsidiaries’
affiliates has any arrangements or agreements with any Buyer relating to the
transactions contemplated hereby that is not set forth in the Transaction
Documents and that all the Buyers are not party to.  Neither the Company nor any of the Company’s
directors, officers, Subsidiaries or any of the Company’s or their Subsidiaries’
affiliates shall enter into any arrangements or agreements with any Buyer
relating to the transactions contemplated hereby unless all Buyers are provided
with the same opportunity to be party to any such arrangement or agreement.

(gg)         Disclosure.  All disclosure provided to the Buyers
regarding the Company and its Subsidiaries, their business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by or
on behalf of the Company is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. 
Each press release issued by the Company or its Subsidiaries during the
twelve (12) months preceding the date of this Agreement did not at the time of
release contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are
made, not misleading.  No event or
circumstance has occurred or information exists with respect to the Company or
any of its Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed.

4.             COVENANTS.

(a)           Best
Efforts.  Each party shall use its
best efforts timely to satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.

(b)           Form
D and Blue Sky.  The Company agrees
to file a Form D with respect to the Common Shares as required under Regulation
D and to provide a copy thereof to each Buyer promptly after such filing.  The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is necessary
in order to obtain an exemption for or to qualify the Common Shares for sale to
the Buyers at the Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Buyers on or prior to the Closing Date.  The Company shall make all filings and
reports relating to the offer and sale of the Common Shares required under applicable
securities or “Blue Sky” laws of the states of the United States following the
Closing Date.

(c)           Reporting
Status.  Until the date on which the
Buyers shall have sold all the Common Shares (the “Reporting Period”), the Company shall timely file all reports 

 

16

 

required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would no longer require or otherwise permit such termination.  From the time Form S-3 is available to the
Company for the registration of the Common Shares, the Company shall take all
actions necessary to maintain its eligibility to register the Common Shares for
resale by the Buyers on Form S-3 and at all times the Company shall conduct its
business in accordance with applicable law.

(d)    Use of Proceeds.  The Company will use the proceeds from the
sale of the Common Shares for the acceleration of the capital expenditure
program, repayment of debt, working capital and general corporate purposes, and
not for the redemption or repurchase of any of its or its Subsidiaries’ equity
securities.

(e)    Listing.  The Company shall promptly secure the listing
of all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which the Common Stock is then listed (subject to official
notice of issuance).

(f)            Pledge
of Common Shares.  The Company
acknowledges and agrees that the Common Shares may be pledged by an Investor
(as defined in the Registration Rights Agreement) in connection with a bona
fide margin agreement or other loan or financing arrangement that is secured by
the Common Shares.  The pledge of Common
Shares shall not be deemed to be a transfer, sale or assignment of the Common
Shares hereunder, and no Investor effecting a pledge of Common Shares shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document.  The Company hereby agrees to
execute and deliver such documentation as a pledgee of the Common Shares may
reasonably request in connection with a pledge of the Common Shares to such
pledgee by an Investor.

(g)           Disclosure of
Transactions and Other Material Information.  On or before 8:30 a.m., New York City time,
on the next Business Day (as defined below) following the date of this
Agreement, the Company shall issue a press release describing the material
terms of the transactions contemplated by the Transaction Documents and on or
before the second Business Day following the date of this Agreement, the
Company shall file a Current Report on Form 8-K describing the terms of the
transactions contemplated by the Transaction Documents in the form required by
the 1934 Act and attaching the material Transaction Documents (including,
without limitation, this Agreement (and all schedules to this Agreement) and
the form of the Registration Rights Agreement) as exhibits to such filing
(including all attachments, the “8-K Filing”).  On or before 8:30 a.m., New York City time,
on the next Business Day following the Closing Date, the Company shall issue a
press release announcing the Closing and disclosing the material, nonpublic
information that the Buyers will have until the release of such second press
release (the “Second Press Release”).  The Company will use its best efforts to
close by and issue the Second Press Release on or before the end of the third
Business Day after the date of this Agreement. 
From and after the issuance of the Second Press Release, no Buyer shall
be in possession of any material, nonpublic information received from the
Company, any of its Subsidiaries or any of its respective officers, directors,
employees or agents, that is not disclosed in the Second Press 

 

17

 

Release.  The Company shall not,
and shall cause each of its Subsidiaries and its and each of their respective
officers, directors, employees and agents, not to, provide any Buyer with any
material, nonpublic information regarding the Company or any of its
Subsidiaries from and after the issuance of the Second Press Release with the
SEC without the express written consent of such Buyer or as may be required
under the terms of the Transaction Documents. 
If a Buyer has, or believes it has, received any such material,
nonpublic information regarding the Company or any of its Subsidiaries directly
from the Company, any of its Subsidiaries, any of their affiliates, officers,
directors or any other Person acting on their behalf,  it shall provide the Company with written
notice thereof.  The Company shall,
within five (5) Trading Days of receipt of such notice, make public disclosure
of such material, nonpublic information. 
“Trading Day” means any day on which the
Common Stock is traded on the Principal Market, or if the Principal Market is
not the principal trading market for the Common Stock, then on the principal
securities exchange or securities market on which the shares of Common Stock
are then traded; provided that “Trading Day” shall not include any day on which
the shares of Common Stock are scheduled to trade on such exchange or market
for less than 4.5 hours or any day that the shares of Common Stock are
suspended from trading during the final hour of trading on such exchange or
market (or if such exchange or market does not designate in advance the closing
time of trading on such exchange or market, then during the hour ending at
4:00:00 p.m., New York Time.  In the
event of a breach of the foregoing covenant by the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, employees
and agents, in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, nonpublic information without the prior approval by the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents.  No Buyer
shall have any liability to the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, stockholders or agents for any
such disclosure.  Subject to the
foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Buyer, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release).  Without the prior written consent of any
applicable Buyer, neither the Company nor any of its Subsidiaries or affiliates
shall disclose the name of such Buyer in any filing, announcement, release or otherwise,
unless such disclosure is required by law, regulation or the Principal Market.

(h)           Additional
Registration Statements.  Until the
Effective Date (as defined in the Registration Rights Agreement), the Company
shall not file a registration statement under the 1933 Act relating to securities
that are not the Common Shares.

(i)            Conduct
of Business.  The business of the
Company and its Subsidiaries shall not be conducted in violation of any law,
ordinance or regulation of any governmental entity, except where such
violations would not result, either individually or in the aggregate, in a
Material Adverse Effect.

 

18

 

(j)            Approval
of Principal Market.  The Company
shall use its best efforts, acting diligently and in good faith, to obtain the
approval of the Principal Market with respect to the transactions contemplated
by the Transaction Documents as soon as practicable.

(k)           Formation
Certificates.  Within ten (10) days
after the Closing, the Company shall have submitted requests for a certificate
evidencing the formation and good standing of the Company and each of its
Subsidiaries in each such entity’s jurisdiction of formation issued by the
Secretary of State (or equivalent) of such jurisdiction of formation and shall
deliver as soon as reasonably practicable to Buyers such certificates
evidencing the formation and good standing of the Company and each of its
Subsidiaries in each such entity’s jurisdiction of formation issued by the
Secretary of State (or equivalent) of such jurisdiction of formation.

(l)            Transfer
Agent Letter.  Within 5 Business Days
of the Closing, the Company shall have delivered to each Buyer a letter from
the Company’s transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five days after the Closing Date.

5.             REGISTER; TRANSFER AGENT INSTRUCTIONS.

(a)           Register.  The Company shall maintain at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to each holder of Common Shares), a register for the Common
Shares in which the Company shall record the name and address of the Person in
whose name the Common Shares have been issued (including the name and address
of each transferee).  The Company shall
keep the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.

(b)           Transfer
Agent Instructions.  The Company
shall issue irrevocable instructions to its transfer agent, and any subsequent
transfer agent, to issue certificates or credit shares to the applicable
balance accounts at DTC, registered in the name of each Buyer or its respective
nominee(s), for the Common Shares issued at the Closing in the form of Exhibit
B attached hereto (the “Irrevocable
Transfer Agent Instructions”). 
The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5(b), and stop transfer
instructions to give effect to Section 2(h) hereof, will be given by the
Company to its transfer agent, and that the Common Shares shall otherwise be
freely transferable on the books and records of the Company as and to the
extent provided in this Agreement and the other Transaction Documents.  If a Buyer effects a sale, assignment or
transfer of the Common Shares in accordance with Section 2(g) and the other
Transaction Documents, the Company shall permit the transfer and shall promptly
instruct its transfer agent to issue one or more certificates or credit shares
to the applicable balance accounts at DTC in such name and in such
denominations as specified by such Buyer to effect such sale, transfer or
assignment.  In the event that such sale,
assignment or transfer involves Common Shares sold, assigned or transferred pursuant
to an effective registration statement or pursuant to Rule 144, the transfer
agent shall issue such Common Shares to the Buyer, assignee or transferee, as
the case may be, without any restrictive legend.

 

19

 

(c)           Breach.  The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to a Buyer and that
the remedy at law for a breach of its obligations under this Section 5 will be
inadequate.  In addition, the Company
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 5, that a Buyer shall be entitled, in addition to
all other available remedies, to seek an order and/or injunction restraining
any breach and requiring immediate issuance and transfer, without the necessity
of showing economic loss and without any bond or other security being required.

(d)           Additional Relief.  If the Company shall fail for any reason or
for no reason to issue to the Buyer unlegended certificates or issue such
Common Shares to such Buyer by electronic delivery at the applicable balance
account at DTC within three (3) Trading Days after the receipt of documents
necessary for the removal of the legend set forth in Section 2(h) above (the “Deadline Date”), then in addition to all other remedies
available to the Buyer, if on or after the Trading Day immediately following
such three Trading Day period, the Buyer purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of
a sale by the Buyer of such Common Shares that the Buyer anticipated receiving
without legend from the Company (a “Buy-In”),
then the Company shall, within three (3) Business Days after the Buyer’s
request and in the Buyer’s discretion, either (i) pay cash to the Buyer in an
amount equal to the Buyer’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s
obligation to deliver such unlegended Common Shares shall terminate, or (ii)
promptly honor its obligation to deliver to the Buyer such unlegended Common
Shares as provided above and pay cash to the Buyer in an amount equal to the
excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the Deadline
Date.  For purposes hereof, “Closing Bid Price” means, for any security
as of any date, the last closing bid price for such security on the Principal
Market, as reported by Bloomberg, or, if the Principal Market begins to operate
on an extended hours basis and does not designate the closing bid price then
the last bid price of such security prior to 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing bid price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.).  If the
Closing Bid Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
holder of Common Shares.  All such
determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

 

20

 

6.             CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

The
obligation of the Company hereunder to issue and sell the Common Shares to each
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for the Company’s sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Buyer with prior written notice thereof:

(a)           Such
Buyer shall have executed each of the Transaction Documents to which it is a
party and delivered the same to the Company.

(b)           Such
Buyer and each other Buyer shall have delivered to the Company the Purchase
Price for the Common Shares being purchased by such Buyer at the Closing by
wire transfer of immediately available funds pursuant to the wire instructions
provided by the Company.

(c)           The
representations and warranties of such Buyer shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date, which shall be true and correct as of such specified
date), and such Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by such Buyer at or
prior to the Closing Date.

(d)           The
Company shall have obtained the approval of the Principal Market with respect
to the consummation of the transactions contemplated by the Transaction
Documents.

(e)           No
judgment, writ, order, injunction, award or decree of or by any court, or
judge, justice or magistrate, including any bankruptcy court or judge, or any
order of or by any governmental authority, shall have been issued, and no
action or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of the transactions contemplated
hereby or in the other Transaction Documents.

7.             CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

The
obligation of each Buyer hereunder to purchase the Common Shares at the Closing
is subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer’s sole
benefit and may be waived by such Buyer at any time in its sole discretion by
providing the Company with prior written notice thereof:

(a)           The
Company shall have duly executed and delivered to such Buyer (A) each of the
Transaction Documents, (B) the Common Shares in such numbers as is set 

 

21

 

forth across from such Buyer’s name on the Schedule of Buyers being
purchased by such Buyer at the Closing pursuant to this Agreement.

(b)           Such
Buyer shall have received the opinion of Haynes and Boone, LLP, the Company’s
outside counsel, dated as of the Closing Date, in a form reasonably acceptable
to the Buyers and their counsel.

(c)           The
Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
Agent Instructions, in the form of Exhibit B attached hereto, which
instructions shall have been delivered to and acknowledged in writing by the
Company’s transfer agent.

(d)           The
Company shall have delivered to such Buyer a certificate, executed by the
Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company’s board of
directors in a form reasonably acceptable to such Buyer, (ii) the Certificate
of Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the
form attached hereto as Exhibit C.

(e)           The
representations and warranties of the Company shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date, which shall be true and correct as of such specified
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. 
Such Buyer shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
such Buyer in the form attached hereto as Exhibit D.

(f)            The
Common Stock (I) shall be designated for quotation or listed on the Principal
Market and (II) shall not have been suspended, as of the Closing Date, by the
SEC or the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened, as of the
Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by
falling below the minimum listing maintenance requirements of the Principal
Market.

(g)           The
Company shall have obtained all governmental, regulatory or third party
consents and approvals, if any, necessary for the sale of the Common Shares.

(h)           The
Company shall have obtained the approval of the Principal Market with respect
to the consummation of the transactions contemplated by the Transaction
Documents and shall have delivered a written copy of such approval to the
Buyers or informed the Buyers of such approval orally if the Principal Market
is unwilling to give such approval in writing.

 

22

 

(i)            The
Company shall have delivered to such Buyer such other documents relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may
reasonably request.

(j)            No
judgment, writ, order, injunction, award or decree of or by any court, or
judge, justice or magistrate, including any bankruptcy court or judge, or any
order of or by any governmental authority, shall have been issued, and no
action or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of the transactions contemplated
hereby or in the other Transaction Documents.

8.             TERMINATION.

In the event that the Closing shall not have occurred with respect to a
Buyer on or before ten (10) Business Days from the date hereof due to the
Company’s or such Buyer’s failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party’s failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party.

 

9.             MISCELLANEOUS.

(a)           Governing
Law; Jurisdiction; Jury Trial.  All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of New York or any other jurisdictions) that
would cause the application of the laws of any jurisdictions other than the
State of New York.  Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the address for
such notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law.  EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.

(b)           Counterparts.  This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the 

 

23

 

other party; provided that a facsimile signature shall be considered
due execution and shall be binding upon the signatory thereto with the same
force and effect as if the signature were an original, not a facsimile
signature.

(c)           Headings.  The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.

(d)           Severability.  If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.

(e)           Entire
Agreement; Amendments.  This
Agreement and the other Transaction Documents supersede all other prior oral or
written agreements between the Buyers, the Company, their Affiliates and
Persons acting on their behalf with respect to the matters discussed herein,
and this Agreement, the other Transaction Documents and the instruments
referenced herein and therein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as specifically
set forth herein or therein, neither the Company nor any Buyer makes any
representation, warranty, covenant or undertaking with respect to such
matters.  No provision of this Agreement
may be amended other than by an instrument in writing signed by the Company and
holders of at least a majority of the Common Shares (other than holders of
Common Shares purchased on any Eligible Market (as defined below) or the
Principal Market with respect to those Common Shares), or, if prior to the
Closing Date, the Buyers listed on the Schedule of Buyers as being obligated to
purchase at least a majority of the amount of the Common Stock, and any
amendment to this Agreement made in conformity with the provisions of this
Section 9(e) shall be binding on all Buyers and holders of Common Shares, as
applicable.  No provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought.  No consideration
shall be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents unless the
same consideration also is offered to all of the parties to the Transaction
Documents and holders of the Common Shares (other than holders of Common Shares
purchased on any Eligible Market (as defined below) or the Principal Market
with respect to those Common Shares). 
The Company has not, directly or indirectly, made any agreements with
any Buyers relating to the terms or conditions of the transactions contemplated
by the Transaction Documents except as set forth in the Transaction
Documents.  Without limiting the
foregoing, the Company confirms that, except as set forth in this Agreement, no
Buyer has made any commitment or promise or has any other obligation to provide
any financing to the Company or otherwise.

(f)            Notices.  Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one Business Day after deposit with an overnight
courier service, in each case properly addressed to the party to receive the
same.  The addresses and facsimile
numbers for such communications shall be:

 

24

 

If
to the Company:

Cano Petroleum, Inc.

801 Cherry St.

Suite 3200

Fort Worth, Texas 76102

Telephone:            (817) 698-0900

Facsimile:              (817) 334-0222

Attention:             Morris B. Smith and Phillip Feiner  

With a copy (for
informational purposes only) to:

W. Bruce Newsome

Haynes and Boone, LLP

901 Main St., Suite 3100

Dallas, TX 75202

Telephone:  (214) 651-5119

Facsimile:  (214) 200-0636   

 

If
to the Transfer Agent:

Interwest Transfer Company

1981 East Murray Holladay Road

Suite 100

P.O. Box 17136

Salt Lake City, UT 84117

Telephone:            (801) 272-9294

Facsimile:              (801) 277-3147

Attention:             Lorraine Smith

If to a Buyer, to its address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer’s representatives as set forth on
the Schedule of Buyers,

with
a copy (for informational purposes only) to:

Schulte
Roth & Zabel LLP 

919 Third Avenue

New York, New York  10022

Telephone:            (212) 756-2000

Facsimile:               (212) 593-5955

Attention:              Eleazer N. Klein,
Esq.

or
to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party pursuant to this Section. 
Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first 

 

25

 

page
of such transmission or (C) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from
an overnight courier service in accordance with clause (i), (ii) or (iii)
above, respectively.

(g)           Successors
and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Common Shares.  The Company shall not assign this Agreement
or any rights or obligations hereunder without the prior written consent of the
holders of at least a majority of the aggregate number of the Common Shares
(other than holders of Common Shares purchased on any Eligible Market (as
defined below) or the Principal Market with respect to those Common
Shares).  A Buyer may assign some or all
of its rights hereunder in connection with transfer of any of its Common Shares
without the consent of the Company, in which event such assignee shall be
deemed to be a Buyer hereunder with respect to such assigned rights.

(h)           No
Third Party Beneficiaries.  This Agreement
is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person.

(i)            Survival.  Unless this Agreement is terminated under
Section 8, the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3 and the agreements and covenants set forth in
Sections 4, 5 and 9 shall survive the Closing and the delivery of Common
Shares.  Each Buyer shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder.

(j)            Further
Assurances.  Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as any other party may reasonably request in order
to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.

(k)           Indemnification.  In consideration of each Buyer’s execution
and delivery of the Transaction Documents and acquiring the Common Shares
thereunder and in addition to all of the Company’s other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Buyer and each other holder of the Common Shares (other than
holders of Common Shares purchased on any Eligible Market (as defined below) or
the Principal Market with respect to those Common Shares), and all of such
Buyer’s stockholders, partners, members, officers, directors, employees and
direct or indirect investors and any of the foregoing Persons’ agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”), as incurred, from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees
and disbursements, but excluding any consequential, indirect or incidental
damages (the “Indemnified Liabilities”),
incurred by any Indemnitee as a result of, or arising out of, or relating to
(a) any misrepresentation or breach of any representation or warranty made by
the Company in the Transaction Documents, (b) any 

 

26

 

breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or (c) any cause of action, suit or
claim brought or made against such Indemnitee by a third party (including for
these purposes a derivative action brought on behalf of the Company) and
arising out of or resulting from (i)  the
execution, delivery, performance or enforcement of the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(ii) any transaction financed or to be financed in whole or in part, directly
or indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(g), or (iv) the status of
such Buyer or holder of the Securities (other than holders of Securities
purchased on any Eligible Market or the Principal Market with respect to those
Securities), as an investor in the Company pursuant to the transactions
contemplated by the Transaction Documents.. 
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.  Except
as otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 9(k) shall be the same as those set
forth in Section 6 of the Registration Rights Agreement.  “Eligible Market”
means the New York Stock Exchange, The NASDAQ Global Select Market, The NASDAQ
Global Market or The NASDAQ Capital Market.

(l)            No
Strict Construction.  The language
used in this Agreement will be deemed to be the language chosen by the parties
to express their mutual intent, and no rules of strict construction will be
applied against any party.

(m)          Remedies.  Each Buyer and each holder of the Common
Shares shall have all rights and remedies set forth in the Transaction
Documents and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law.  Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law. 
Furthermore, the Company recognizes that in the event that it fails to
perform, observe, or discharge any or all of its obligations under the
Transaction Documents, any remedy at law may prove to be inadequate relief to
the Buyers.  The Company therefore agrees
that the Buyers shall be entitled to seek temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages and
without posting a bond or other security. 
Notwithstanding anything to the contrary contained herein, no Buyer or
holder of Common Shares shall be entitled to consequential, indirect or
incidental damages hereunder.  However,
the foregoing shall not in any way limit a Buyer or holder of Common Shares
from being reimbursed for its costs, fees or expenses, including, without
limitation, reasonable attorneys’ fees and disbursements in connection with any
of its rights and remedies hereunder.

(n)           Rescission and
Withdrawal Right.  Notwithstanding
anything to the contrary contained in (and without limiting any similar
provisions of) the Transaction Documents, whenever any Buyer exercises a right,
election, demand or option under a Transaction Document and the Company does
not timely perform its related obligations within the periods therein provided,
then such Buyer may rescind or withdraw, in its sole discretion from time to
time prior to the Company’s performance upon written notice to the 

 

27

 

Company, any relevant notice, demand or election in whole or in part
without prejudice to its future actions and rights.

(o)           Payment
Set Aside.  To the extent that the
Company makes a payment or payments to the Buyers hereunder or pursuant to any
of the other Transaction Documents or the Buyers enforce or exercise their
rights hereunder or thereunder, and such payment or payments or the proceeds of
such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, foreign, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.

(p)           Independent
Nature of Buyers’ Obligations and Rights. 
The obligations of each Buyer under any Transaction Document are several
and not joint with the obligations of any other Buyer, and no Buyer shall be
responsible in any way for the performance of the obligations of any other
Buyer under any Transaction Document. 
Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as, and the Company acknowledges that the Buyers do not
so constitute, a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Buyers are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents and the Company acknowledges that the Buyers are not
acting in concert or as a group, and the Company will not assert any such
claim, with respect to such obligations or the transactions contemplated by
the Transaction Documents.  The Company
acknowledges and each Buyer confirms that it has independently participated in
the negotiation of the transaction contemplated hereby with the advice of its
own counsel and advisors.  Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement or out of any
other Transaction Documents, and it shall not be necessary for any other Buyer
to be joined as an additional party in any proceeding for such purpose.

[Signature
Page Follows]

 

 

 

28

 

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

 

	
  COMPANY:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CANO PETROLEUM, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
  S. Jeffrey Johnson

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Chairman and CEO

  	
   

  
														

 

29

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

 

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  CALM
  WATERS PARTNERSHIP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Richard S. Strong

  	
   

  
	
   

  	
  Name:

  	
  Richard
  S. Strong

  	
   

  
	
   

  	
  Title:

  	
  Managing
  Partner

  	
   

  
									

 

30

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

 

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  GEORGE
  WEISS ASSOCIATES INC.

  PROFIT
  SHARING PLAN

   

  IOU
  LIMITED PARTNERSHIP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Steven C. Kleinman

  	
   

  
	
   

  	
  Name:

  	
  Steven
  C. Kleinman

  	
   

  
	
   

  	
  Title:

  	
  Authorized
  Signatory

  	
   

  
						

 

 

31

 

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HARRY-ANNA INVESTMENT FUND, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing Member of

  	
   

  
	
   

  	
   

  	
  Westcliff Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the Investment Advisor

  	
   

  
						

 

32

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  COMPASS SAV, LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing Member of

  	
   

  
	
   

  	
   

  	
  Westcliff Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the Investment Advisor

  	
   

  
								

 

33

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  US DOLLAR CLASS CELL OF

  	
   

  
	
  COMPASS OFFSHORE SAV PCC, LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing Member of

  	
   

  
	
   

  	
   

  	
  Westcliff Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the Investment Advisor

  	
   

  
									

 

 

34

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  QUEENSCARE

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing Member of

  	
   

  
	
   

  	
   

  	
  Westcliff Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the Investment Advisor

  	
   

  
									

 

35

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ASHDON SELECT MANAGER TRUST —

  	
   

  
	
  ASHDON INVESTMENT, LLC MASTER TRUST

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing Member of

  	
   

  
	
   

  	
   

  	
  Westcliff Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the Investment Advisor

  	
   

  
							

 

36

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  DAIMLER CHRYSLER CORPORATION

  	
   

  
	
  MASTER RETIREMENT TRUST

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing Member of

  	
   

  
	
   

  	
   

  	
  Westcliff Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the Investment Advisor

  	
   

  
								

 

37

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  WESTCLIFF FUND, LP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Richard S. Spencer

  	
   

  
	
   

  	
  Name:

  	
  Richard S. Spencer

  	
   

  
	
   

  	
  Title:

  	
  Managing Member of

  	
   

  
	
   

  	
   

  	
  Westcliff Capital Management, LLC,

  	
   

  
	
   

  	
   

  	
  the General Partner

  	
   

  
							

 

38

 

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  UBS O’CONNOR LLC F/B/O:

  	
   

  
	
  O’CONNOR PIPES CORPORATE

  	
   

  
	
  STRATEGIES MASTER LIMITED

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Jeffrey Putman

  	
   

  
	
   

  	
  Name:

  	
  Jeffrey Putman

  	
   

  
	
   

  	
  Title:

  	
  Portfolio Manager

  	
   

  
									

 

39

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TRAPEZE CAPITAL CORP., on behalf of managed
  accounts

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Adam Abramson

  	
   

  
	
   

  	
  Name:

  	
  Adam Abramson

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
									

 

40

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TRAPEZE ASSET MANAGEMENT INC., on behalf of
  managed accounts

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Adam Abramson

  	
   

  
	
   

  	
  Name:

  	
  Adam Abramson

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
									

 

41

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HUDSON BAY FUND LP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Yoav Roth

  	
   

  
	
   

  	
  Name:

  	
  Yoav Roth

  	
   

  
	
   

  	
  Title:

  	
  Principal and Portfolio Manager

  	
   

  
								

 

42

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HUDSON BAY OVERSEES FUND LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Yoav Roth

  	
   

  
	
   

  	
  Name:

  	
  Yoav Roth

  	
   

  
	
   

  	
  Title:

  	
  Principal and Portfolio Manager

  	
   

  
								

 

43

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase Agreement
to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CRESTVIEW CAPITAL MASTER, LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  Crestview Capital Partners, LLC,

  	
   

  
	
   

  	
  its sole manager

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stewart Flink

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Stewart Flink

  	
   

  
	
   

  	
   

  	
  Title: 

  	
  Manager

  	
   

  
														

 

44

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARGONAUT VENTURES I, LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Jason Martin

  	
   

  
	
   

  	
  Name:

  	
  Jason Martin

  	
   

  
	
   

  	
  Title:

  	
  Authorized Agent

  	
   

  
								

 

45

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  CARLYLE MULTI-STRATEGY

  MASTER FUND

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Ralph Reynolds

  	
   

  
	
   

  	
  Name:

  	
  Ralph Reynolds

  	
   

  
	
   

  	
  Title:

  	
  Chief Investment Officer

  	
   

  
						

 

 

46

 

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  INDUSTRIAL HARVEST PARTNERS MASTER FUND, LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Todd McElroy

  	
   

  
	
   

  	
  Name:

  	
  Todd McElroy

  	
   

  
	
   

  	
  Title:

  	
  CFO, Investment Manager

  	
   

  
									

 

 

 

47

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase Agreement
to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ING GLOBAL RESOURCES PORTFOLIO

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Anthony Socci

  	
   

  
	
   

  	
  Name:

  	
  Anthony Socci

  	
   

  
	
   

  	
  Title:

  	
  VP Senior Research Analyst

  on behalf of ING Investment 

  Management Co.

  	
   

  
							

 

48

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ING GLOBAL NATURAL RESOURCES FUND

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Anthony Socci

  	
   

  
	
   

  	
  Name:

  	
  Anthony Socci

  	
   

  
	
   

  	
  Title:

  	
  VP Senior Research Analyst

  on behalf of ING Investment 

  Management Co.

  	
   

  
							

 

49

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ING RISK MANAGED NATURAL RESOURCES FUND

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Anthony Socci

  	
   

  
	
   

  	
  Name:

  	
  Anthony Socci

  	
   

  
	
   

  	
  Title:

  	
  VP Senior Research Analyst

  on behalf of ING Investment 

  Management Co.

  	
   

  
						

 

50

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  GLOBAL NATURAL RESOURCES TRUST FUND

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Anthony Socci

  	
   

  
	
   

  	
  Name:

  	
  Anthony Socci

  	
   

  
	
   

  	
  Title:

  	
  VP Senior Research Analyst

  on behalf of ING Investment 

  Management Co.

  	
   

  
							

 

51

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GLG NORTH AMERICAN OPPORTUNITY FUND

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  GLG Partners L.P., as investment manager

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Tim Kuschill

  	
   

  
	
   

  	
  Name:

  	
  Tim Kuschill

  	
   

  
	
   

  	
  Title:

  	
  Legal Counsel for GLG Partners L.P.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Victoria Parry

  	
   

  
	
   

  	
  Name:

  	
  Victoria Parry

  	
   

  
	
   

  	
  Title:

  	
  Senior Legal Counsel for GLG Partners L.P.

  	
   

  
																

 

52

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HARBOUR HOLDING LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Name:

  	
  Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
							

 

 

53

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SKYLANDS SPECIAL INVESTMENT LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Name:

  	
  Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Title:

  	
  Vice President — Skylands Capital, LLC, Managing 

  Member of Skylands Special Investment LLC

  	
   

  
							

 

 

54

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SKYLANDS QUEST LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Name:

  	
  Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Title:

  	
  Vice President — Skylands Capital, LLC, Managing 

  Member of Skylands Quest LLC

  	
   

  
							

 

55

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SKYLANDS SPECIAL INVESTMENT II LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Name:

  	
  Pamela A. Cavanaugh

  	
   

  
	
   

  	
  Title:

  	
  Vice President — Skylands Capital, LLC, Managing 

  Member of Skylands Special Investment II LLC

  	
   

  
							

 

56

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written above.

	
  BUYERS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ENABLE GROWTH PARTNERSHIP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Brendan O’Neil

  	
   

  
	
   

  	
  Name:

  	
  Brendan O’Neil

  	
   

  
	
   

  	
  Title:

  	
  Principal and Portfolio Manager

  	
   

  
									

 

 

57

 

SCHEDULE OF BUYERS

 

	
  Buyer

  	
   

  	
  Address
  and

  Facsimile Number

  	
   

  	
  Aggregate
  Number of Common

  Shares

  	
   

  	
  Purchase

  Price

  	
   

  	
  Legal
  Representative’s

  Address and

  Facsimile Number

  
	
  Calm Waters Partnership

  	
   

  	
  115 S. 84th
  Street, Suite 200

  Milwaukee, WI 53214

  	
   

  	
  400,000

  	
   

  	
  $2,860,000

  	
   

  	
  Susan A. Hollister, Esq.

  115 S. 84th Street, Suite 200

  Milwaukee, WI 53214

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  George Weiss Associates
  Inc.

  Profit Sharing Plan

  	
   

  	
  One State Street, 20th
  Floor

  Hartford, CT 06103

  	
   

  	
  19,300

  	
   

  	
  $137,995

  	
   

  	
  David Call, Esq.

  George Weiss Associates Inc.

  One State Street, 20th Floor

  Hartford, CT 06103

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  IOU Limited Partnership

  	
   

  	
  One State Street, 20th
  Floor

  Hartford, CT 06103

  	
   

  	
  220,700

  	
   

  	
  $1,578,005

  	
   

  	
  David Call, Esq.

  George Weiss Associates Inc.

  One State Street, 20th Floor

  Hartford, CT 06103

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Harry-Anna Investment
  Fund

  	
   

  	
  200 7th
  Avenue, Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  	
   

  	
  11,200

  	
   

  	
  $80,080

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Compass SAV, LLC

  	
   

  	
  200 7th
  Avenue, Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  	
   

  	
  36,400

  	
   

  	
  $260,260

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  US Dollar Class Cell of
  Compass Offshore SAV PCC, Ltd.

  	
   

  	
  200 7th
  Avenue, Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  	
   

  	
  36,400

  	
   

  	
  $260,260

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  QueensCare

  	
   

  	
  200 7th
  Avenue, Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  	
   

  	
  11,600

  	
   

  	
  $82,940

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Westcliff Fund, LP

  	
   

  	
  200 7th Avenue,
  Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  	
   

  	
  149,200

  	
   

  	
  $1,066,780

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ashdon Select Manager
  Trust — Ashdon Investment Management, LLC Master Trust

  	
   

  	
  200 7th
  Avenue, Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  	
   

  	
  4,400

  	
   

  	
  $31,460

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Daimler Chrysler
  Corporation Master Retirement Trust

  	
   

  	
  200 7th
  Avenue, Suite 106

  Santa Cruz, CA 95062

  Attn: M. Hinz

  	
   

  	
  60,800

  	
   

  	
  $434,720

  	
   

  	
   

  

 

 

58

 

 

	
  Buyer

  	
   

  	
  Address
  and

  Facsimile Number

  	
   

  	
  Aggregate
  Number of Common

  Shares

  	
   

  	
  Purchase

  Price

  	
   

  	
  Legal
  Representative’s

  Address and

  Facsimile Number

  
	
  UBS O’Connor LLC F/B/O:
  O’Connor PIPES Corporate Strategies Master Limited

  	
   

  	
  One North Wacker Dr.

  32nd Floor

  c/o UBS O’Connor

  Chicago, IL 60606

  Attn: Robert Murray

  	
   

  	
  180,000

  	
   

  	
  $1,287,000

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Trapeze Capital Corp.,
  on behalf of managed accounts Investor Company

  	
   

  	
  77 Bloor Street West

  2nd Floor

  Toronto, ON

  CANADA M5S1M2

  	
   

  	
  296,800

  	
   

  	
  $2,122,120

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Trapeze Asset
  Management, Inc., on behalf of managed accounts Investor Company

  	
   

  	
  77 Bloor Street West

  2nd Floor

  Toronto, ON

  CANADA M5S1M2

  	
   

  	
  630,300

  	
   

  	
  $4,506,645

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  on behalf of managed
  accounts BMO Nesbitt Burns ITF Millenium Partners, LLP

  	
   

  	
  1 First Canadian Place

  35th Floor

  Toronto, ON

  CANADA M5X1H3

  	
   

  	
  37,200

  	
   

  	
  $265,980

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  on behalf of managed
  accounts Roytor & Co.

  	
   

  	
  200 Bay Street

  5th Level

  Toronto, ON

  CANADA M5J2J5

  	
   

  	
  15,700

  	
   

  	
  $112,255

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Hudson Bay Fund LP

  	
   

  	
  120 Broadway

  40th Floor

  New York, NY 10271

  	
   

  	
  66,650

  	
   

  	
  $4,765,475

  	
   

  	
  Schulte Roth &
  Zabel, LLP

  919 Third Avenue

  New York, NY 10022

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Hudson Bay Oversees Fund
  LTD.

  	
   

  	
  120 Broadway

  40th Floor

  New York, NY 10271

  	
   

  	
  88,350

  	
   

  	
  $631,702.50

  	
   

  	
  Schulte Roth &
  Zabel, LLP

  919 Third Avenue

  New York, NY 10022

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Crestview Capital Funds

  	
   

  	
  95 Revere Drive, Suite A

  Northbrook, IL 60062

  	
   

  	
  120,000

  	
   

  	
  $858,000

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Argonaut Ventures I, LLC

  	
   

  	
  6733 S. Yale

  Tulsa, OK 74136

  	
   

  	
  280,000

  	
   

  	
  $2,002,000

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Carlyle Multi-Strategy
  Master Fund

  	
   

  	
  1177 Avenue of the
  Americas, 16th Floor

  c/o Carlyle-Blue Wave Partners Management, LP

  New York, NY 10036

  	
   

  	
  50,000

  	
   

  	
  $357,500

  	
   

  	
   

  

 

 

59

 

	
  Buyer

  	
   

  	
  Address
  and

  Facsimile Number

  	
   

  	
  Aggregate
  Number of Common

  Shares

  	
   

  	
  Purchase

  Price

  	
   

  	
  Legal
  Representative’s

  Address and

  Facsimile Number

  
	
  Industrial Harvest
  Partners Master Fund, Ltd.

  	
   

  	
  220 East 42nd
  Street

  29th Floor

  New York, NY 10017

  	
   

  	
  35,000

  	
   

  	
  $250,250

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ING Global Resources
  Portfolio

  	
   

  	
  c/o ING Investment
  Management Company

  230 Park Avenue

  New York, NY 10169

  	
   

  	
  171,900

  	
   

  	
  $1,229,085

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ING Global Natural
  Resources Fund

  	
   

  	
  c/o ING Investment
  Management Company

  230 Park Avenue

  New York, NY 10169

  	
   

  	
  23,000

  	
   

  	
  $164,450

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ING Risk Managed Natural
  Resources Fund

  	
   

  	
  c/o ING Investment
  Management Company

  230 Park Avenue

  New York, NY 10169

  	
   

  	
  20,800

  	
   

  	
  $148,720

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Global Natural Resources
  Trust Fund

  	
   

  	
  c/o ING Investment
  Management Company

  230 Park Avenue

  New York, NY 10169

  	
   

  	
  4,300

  	
   

  	
  $30,745

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GLG North American
  Opportunity Fund

  	
   

  	
  Walker House

  87 Mary Street

  George Town

  Grand Cayman

  Cayman Islands KY1-9002

  

  c/o GLG Partners LP

  Attn: Legal Department

  One Curzon Streeet

  London, England W1J5HB

  	
   

  	
  300,000

  	
   

  	
  $2,145,000

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Harbour Holdings Ltd.

  	
   

  	
  c/o Skylands Capital,
  LLC

  1200 N. Mayfair Road

  Suite 250

  Milwaukee, WI 53213

  	
   

  	
  60,600

  	
   

  	
  $433,290

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Skylands Special
  Investment LLC.

  	
   

  	
  c/o Skylands Capital,
  LLC

  1200 N. Mayfair Road

  Suite 250

  Milwaukee, WI 53213

  	
   

  	
  25,600

  	
   

  	
  $183,040

  	
   

  	
   

  

 

 

60

 

	
  Buyer

  	
   

  	
  Address
  and

  Facsimile Number

  	
   

  	
  Aggregate
  Number of Common

  Shares

  	
   

  	
  Purchase

  Price

  	
   

  	
  Legal
  Representative’s

  Address and

  Facsimile Number

  
	
  Skylands Quest LLC.

  	
   

  	
  c/o Skylands Capital,
  LLC

  1200 N. Mayfair Road

  Suite 250

  Milwaukee, WI 53213

  	
   

  	
  8,800

  	
   

  	
  $62,920

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Skylands Special
  Investment II LLC.

  	
   

  	
  c/o Skylands Capital,
  LLC

  1200 N. Mayfair Road

  Suite 250

  Milwaukee, WI 53213

  	
   

  	
  5,000

  	
   

  	
  $35,750

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Enable Growth Partners
  LP

  	
   

  	
  One Ferry Building

  Suite 255

  San Francisco, CA 94111

  	
   

  	
  130,000

  	
   

  	
  $929,500

  	
   

  	
   

  

 

 

 

 

 

61

 

EXHIBITS

Exhibit
A                Form of Registration
Rights Agreement

Exhibit
B                Form of Irrevocable
Transfer Agent Instructions

Exhibit
C                Form of Secretary’s
Certificate

Exhibit
D                Form of Officer’s
Certificate

 

 

 

SCHEDULES

 

Schedule 3(a)                        Subsidiaries

Schedule 3(d)                        No
Conflicts

Schedule 3(e)                        Consents

Schedule 3(f)                         Acknowledgment
Regarding Buyer’s Purchase of Common Shares

Schedule 3(k)                        Absence
of Certain Changes

Schedule 3(p)                        Transactions
with Affiliates

Schedule 3(q)                        Equity Capitalization

Schedule 3(t)                         Absence
of Litigation

Schedule 3(w)                       Title

 

 

 

 

 

 

 

EXHIBIT
A

 

REGISTRATION
RIGHTS AGREEMENT

REGISTRATION RIGHTS
AGREEMENT (this “Agreement”),
dated as of November 2, 2007, by and among Cano Petroleum, Inc., a Delaware
corporation, with headquarters located at 801 Cherry St., Suite 3200, Fort
Worth, Texas 76102 (the “Company”),
and the undersigned buyers (each, a “Buyer”,
and collectively, the “Buyers”).

 

WHEREAS:

A.            In
connection with the Securities Purchase Agreement by and among the parties
hereto of even date herewith (the “Securities Purchase
Agreement”), the Company has agreed, upon the terms and subject to
the conditions set forth in the Securities Purchase Agreement, to issue and
sell to each Buyer shares (the “Common Shares”)
of the Company’s common stock, par value $0.0001 per share (the “Common Stock”).

B.            In
accordance with the terms of the Securities Purchase Agreement, the Company has
agreed to provide certain registration rights under the Securities Act of 1933,
as amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the “1933 Act”),
and applicable state securities laws.

 

NOW, THEREFORE, in consideration of the
premises and the mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Company and each of the Buyers hereby agree as follows:

10.   Definitions.

Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement.  As used in this Agreement, the following
terms shall have the following meanings:

(a)   “Additional
Effectiveness Date” means the date the Additional Registration
Statement is declared effective by the SEC.

(b)   “Additional
Effectiveness Deadline” means the date which is forty five (45)
calendar days after the earlier of the Additional Filing Date and the
Additional Filing Deadline or in the event that the Registration Statement is
subject to any review by the SEC pursuant to which the SEC issues comments,
seventy five (75) calendar days after the earlier of the Additional Filing Date
and the Additional Filing Deadline.

(c)   “Additional
Filing Date” means the date on which the Additional Registration
Statement is filed with the SEC.

 

A-1

 

(d)   “Additional
Filing Deadline” means if Cutback Shares are required to be included
in the Additional Registration Statement, the later of (i) the date sixty (60)
days after the date substantially all of the Registrable Securities registered
under the immediately preceding Registration Statement are sold and (ii) the
date six (6) months from the Initial Effective Date or the last Additional
Effective Date, as applicable.

(e)   “Additional
Registrable Securities” means, (i) any Cutback Shares not previously
included on a Registration Statement and (ii) any capital stock of the Company
issued or issuable with respect to the Common Shares or Cutback Shares, as
applicable, as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise.

(f)    “Additional
Registration Statement” means a registration statement or
registration statements of the Company filed under the 1933 Act covering any
Additional Registrable Securities.

(g)   “Additional Required Registration Amount” means any Cutback
Shares not previously included on a Registration Statement.

(h)   “Business Day” means any day other than Saturday, Sunday or any
other day on which commercial banks in the City of New York are authorized or
required by law to remain closed.

(i)    “Closing Date” shall have the meaning set forth in the
Securities Purchase Agreement.

(j)    “Cutback
Shares” means any of the Initial Required Registration Amount
(without regard to clause (II) in the definition thereof) of Registrable
Securities not included in all Registration Statements previously declared
effective hereunder as a result of a limitation on the maximum number of shares
of Common Stock of the Company permitted to be registered by the staff of the
SEC pursuant to Rule 415.

(k)   “Effective Date” means the Initial Effective Date and the
Additional Effective Date, as applicable.

(l)    “Effectiveness Deadline” means the Initial Effectiveness
Deadline and the Additional Effectiveness Deadline, as applicable.

(m)  “Filing Deadline” means the Initial Filing Deadline and the
Additional Filing Deadline, as applicable.

(n)   “Initial
Effective Date” means the date that the Initial Registration
Statement has been declared effective by the SEC.

(o)   “Initial
Effectiveness Deadline” means the date which is (i) in the event
that the Registration Statement is not subject to any review by the SEC
pursuant to which the SEC issues comments, ninety (90) days after the Closing
Date or (ii) in the event that the Registration Statement is subject to any
review by the SEC pursuant to which the SEC issues comments, one hundred twenty
(120) days after the Closing Date.

 

A-2

 

(p)   “Initial
Filing Deadline” means the date that is forty five (45) days after
the Closing Date.

(q)   “Initial
Registrable Securities” means (i) the Common Shares and (ii) any
capital stock of the Company issued or issuable with respect to the Common
Shares as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise.

(r)    “Initial
Registration Statement” means a registration statement or
registration statements of the Company filed under the 1933 Act covering the
Initial Registrable Securities.

(s)   “Initial Required Registration Amount” means (I) 100% of the number
of Common Shares issued or (II) such other amount as may be required by the
staff of the SEC pursuant to Rule 415 with any cutback applied pro rata to all
Registrable Securities.

(t)    “Investor” means a Buyer or any transferee or assignee thereof
to whom a Buyer assigns its rights under this Agreement and who agrees to
become bound by the provisions of this Agreement in accordance with Section 9
and any transferee or assignee thereof to whom a transferee or assignee assigns
its rights under this Agreement and who agrees to become bound by the
provisions of this Agreement in accordance with Section 9.

(u)   “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

(v)   “register,” “registered,”
and “registration” refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415, and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.

(w)  “Registrable Securities” means the Initial Registrable
Securities and the Additional Registrable Securities.

(x)    “Registration Statement” means a registration statement or
registration statements of the Company filed under the 1933 Act covering the
Registrable Securities.

(y)   “Required Holders” means the holders of at least a majority of
the Registrable Securities.

(z)    “Required Registration Amount” means either the Initial
Required Registration Amount or the Additional Required Registration Amount, as
applicable.

(aa) “Rule 415” means Rule 415 under the 1933 Act or any successor
rule providing for offering securities on a continuous or delayed basis.

(bb) “SEC” means the United States Securities and Exchange
Commission.

 

A-3

 

11.   Registration.

(a)   Initial Mandatory
Registration.  The Company shall
prepare, and, as soon as practicable, but in no event later than the Initial
Filing Deadline, file with the SEC the Initial Registration Statement on Form
S-3 covering the resale of all of the Initial Registrable Securities.  In the event that Form S-3 is unavailable for
such a registration, the Company shall use Form S-1 or such other form as is
available for such a registration on another appropriate form reasonably
acceptable to the Required Holders.  The
Initial Registration Statement prepared pursuant hereto shall register for
resale at least the number of shares of Common Stock equal to the Initial
Required Registration Amount determined as of the date the Initial Registration
Statement is initially filed with the SEC. 
The Initial Registration Statement shall contain (except if otherwise
directed by the Required Holders) the “Selling Stockholders” and “Plan
of Distribution” sections in substantially the form attached hereto as Exhibit
B.  The Company shall use its best
efforts to have the Initial Registration Statement declared effective by the
SEC as soon as practicable, but in no event later than the Initial
Effectiveness Deadline.  By 9:30 a.m. New
York time on the Business Day following the Initial Effective Date, the Company
shall file with the SEC in accordance with Rule 424 under the 1933 Act the final
prospectus to be used in connection with sales pursuant to such Initial
Registration Statement.

(b)   Additional Mandatory
Registrations.  The Company shall
prepare, and, as soon as practicable but in no event later than the Additional
Filing Deadline, file with the SEC an Additional Registration Statement on Form
S-3 covering the resale of all of the Additional Registrable Securities not
previously registered on an Additional Registration Statement hereunder.  To the extent the staff of the SEC does not
permit the Additional Required Registration Amount to be registered on an
Additional Registration Statement, the Company shall file Additional
Registration Statements successively trying to register on each such Additional
Registration Statement the maximum number of remaining Additional Registrable
Securities until the Additional Required Registration Amount has been
registered with the SEC.  In the event
that Form S-3 is unavailable for such a registration, the Company shall use
such other form as is available for such a registration on another appropriate
form reasonably acceptable to the Required Holders.  Each Additional Registration Statement
prepared pursuant hereto shall register for resale at least that number of
shares of Common Stock equal to the Additional Required Registration Amount
determined as of the date such Additional Registration Statement is initially
filed with the SEC.  Each Additional
Registration Statement shall contain (except if otherwise directed by the
Required Holders) the “Selling Stockholders” and “Plan of
Distribution” sections in substantially the form attached hereto as Exhibit
B.  The Company shall use its best
efforts to have each Additional Registration Statement declared effective by
the SEC as soon as practicable, but in no event later than the Additional
Effectiveness Deadline.  By 9:30 a.m. New
York time on the Business Day following the Additional Effective Date, the
Company shall file with the SEC in accordance with Rule 424 under the 1933 Act
the final prospectus to be used in connection with sales pursuant to such
Additional Registration Statement..

(c)   Allocation of Registrable
Securities.  The initial number of
Registrable Securities included in any Registration Statement and any increase
or decrease in the number of Registrable Securities included therein shall be
allocated pro rata among the Investors based on the number of Registrable
Securities held by each Investor at the time the Registration Statement
covering such initial number of Registrable Securities or increase or decrease
thereof is declared 

 

A-4

 

effective
by the SEC.  In the event that an
Investor sells or otherwise transfers any of such Investor’s Registrable
Securities, each transferee shall be allocated a pro rata portion of the then
remaining number of Registrable Securities included in such Registration
Statement for such transferor.  In no
event shall the Company include any securities other than Registrable Securities
on any Registration Statement without the prior written consent of the Required
Holders.

(d)   Legal Counsel.  Subject to Section 5 hereof, the Required
Holders shall have the right to select one legal counsel to review and oversee
any registration pursuant to this Section 2 (“Legal
Counsel”), which shall be Schulte Roth & Zabel LLP or such other
counsel as thereafter designated by the Required Holders.  The Company and Legal Counsel shall
reasonably cooperate with each other in performing the Company’s obligations
under this Agreement.

(e)   Ineligibility for Form
S-3.  In the event that Form S-3 is
not available for the registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable
Securities on another appropriate form reasonably acceptable to the Required
Holders and (ii) undertake to register the Registrable Securities on Form S-3
as soon as such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.

(f)    Effect of Failure to
File and Obtain and Maintain Effectiveness of Registration Statement.  If (i) a Registration Statement covering all
of the Registrable Securities required to be covered thereby and required to be
filed by the Company pursuant to this Agreement is (A) not filed with the SEC
on or before the respective Filing Deadline (a “Filing
Failure”) or (B) not declared effective by the SEC on or before the
respective Effectiveness Deadline (an “Effectiveness Failure”)
or (ii) on any day after the Effective Date sales of all of the Registrable
Securities required to be included on such Registration Statement cannot be
made (other than during an Allowable Grace Period (as defined in Section 3(r))
pursuant to such Registration Statement (including, without limitation, because
of a failure to keep such Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to such Registration
Statement, to register a sufficient number of shares of Common Stock or to
maintain the listing of the Common Stock) (a “Maintenance
Failure”) then, as partial relief for the damages to any holder by
reason of any such delay in or reduction of its ability to sell the underlying
shares of Common Stock and not as a penalty (which remedy shall not be
exclusive of any other remedies available at law or in equity), the Company
shall pay to each holder of Registrable Securities relating to such
Registration Statement an amount in cash equal to one percent (1.0%) of the
aggregate Purchase Price (as such term is defined in the Securities Purchase
Agreement) of such Investor’s Registrable Securities included in such Registration
Statement on each of the following dates: 
(i) the day of a Filing Failure; (ii) the day of an Effectiveness
Failure; (iii) the initial day of a Maintenance Failure; (iv) on every
thirtieth day after the day of a Filing Failure and thereafter (pro rated for
periods totaling less than thirty days) until such Filing Failure is cured; (v)
on every thirtieth day after the day of an Effectiveness Failure and thereafter
(pro rated for periods totaling less than thirty days) until such Effectiveness
Failure is cured; and (vi) on every thirtieth day after the initial day of a 

 

A-5

 

Maintenance
Failure and thereafter (pro rated for periods totaling less than thirty days)
until such Maintenance Failure is cured. 
The payments to which a holder shall be entitled pursuant to this
Section 2(f) are referred to herein as “Registration Delay Payments.”  Registration Delay Payments shall be paid on
the earlier of (I) the dates set forth above and (II) the third Business Day
after the event or failure giving rise to the Registration Delay Payments is
cured.  In the event the Company fails to
make Registration Delay Payments in a timely manner, such Registration Delay
Payments shall bear interest at the rate of one and one-half percent (1.5%) per
month (prorated for partial months) until paid in full.  Notwithstanding anything herein or in the
Securities Purchase Agreement to the contrary in no event shall the aggregate
amount of Registration Delay Payments (other than Registration Delay Payments
payable pursuant to events that are within the control of the Company, such as
solely for the purposes of an example, failure to file any registration
statement required hereby) exceed, in the aggregate, 10% of the aggregate Purchase
Price.

12.   Related Obligations.

At
such time as the Company is obligated to file a Registration Statement with the
SEC pursuant to Section 2(a), 2(b) or 2(e), the Company will use its best
efforts to effect the registration of the Registrable Securities in accordance
with the intended method of disposition thereof and, pursuant thereto, the
Company shall have the following obligations:

(a)   The Company shall promptly
prepare and file with the SEC a Registration Statement with respect to the
Registrable Securities and use its best efforts to cause such Registration
Statement relating to the Registrable Securities to become effective as soon as
practicable after such filing (but in no event later than the Effectiveness
Deadline).  The Company shall keep each
Registration Statement effective pursuant to Rule 415 at all times until the
earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) (or any successor thereto) promulgated
under the 1933 Act or (ii) the date on which the Investors shall have sold all
of the Registrable Securities covered by such Registration Statement (the “Registration Period”).  The Company shall ensure that each Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein (in the case of prospectuses, in the light of the
circumstances in which they were made) not misleading.  The term “best efforts” shall mean, among
other things, that the Company shall submit to the SEC, within three (3)
Business Days after the later of the date that (i) the Company learns that no
review of a particular Registration Statement will be made by the staff of the
SEC or that the staff has no further comments on a particular Registration
Statement, as the case may be and (ii) the approval of Legal Counsel pursuant
to Section 3(c) (which approval is immediately sought and shall not be
unreasonably withheld or delayed), a request for acceleration of effectiveness
of such Registration Statement to a time and date not later than 48 hours after
the submission of such request.

(b)   The Company shall prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with such Registration Statement, which prospectus is to be filed pursuant to
Rule 424 promulgated under the 1933 Act, as may be necessary to keep such 

 

A-6

 

Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement.  In the case of amendments and
supplements to a Registration Statement which are required to be filed pursuant
to this Agreement (including pursuant to this Section 3(b)) by reason of the
Company filing a report on Form 10-Q, Form 10-K or any analogous report under
the Securities Exchange Act of 1934, as amended (the “1934 Act”), the Company shall have
incorporated such report by reference into such Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC within
one (1) Business Day after the day on which the 1934 Act report is filed which
created the requirement for the Company to amend or supplement such
Registration Statement.

(c)   The Company shall (A) permit
Legal Counsel to review and comment upon (i) a Registration Statement at least
five (5) Business Days prior to its filing with the SEC and (ii) all amendments
and supplements to all Registration Statements (except for Annual Reports on
Form 10-K or Form 10-KSB, Quarterly Reports on Form 10-Q or Form 10-QSB,
Current Reports on Form 8-K, and any similar or successor reports) within a
reasonable number of days prior to their filing with the SEC, and (B) not file
any Registration Statement or amendment or supplement thereto in a form to
which Legal Counsel reasonably objects. 
The Company shall not submit a request for acceleration of the
effectiveness of a Registration Statement or any amendment or supplement
thereto without the prior approval of Legal Counsel, which consent shall not be
unreasonably withheld or delayed.  The
Company shall furnish to Legal Counsel, without charge, (i) copies of any
correspondence from the SEC or the staff of the SEC to the Company or its
representatives relating to any Registration Statement, (ii) promptly after the
same is prepared and filed with the SEC, one copy of any Registration Statement
and any amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, if requested by an Investor, and
all exhibits and (iii) upon the effectiveness of any Registration Statement,
one copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto.  The
Company shall reasonably cooperate with Legal Counsel in performing the Company’s
obligations pursuant to this Section 3.

(d)   The Company shall furnish to
each Investor whose Registrable Securities are included in any Registration
Statement, without charge, (i) promptly after the same is prepared and filed
with the SEC, at least one copy of such Registration Statement and any
amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, and, if requested by an Investor,
all exhibits and each preliminary prospectus, (ii) upon the effectiveness of
any Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such
other number of copies as such Investor may reasonably request) and (iii) such
other documents, including copies of any preliminary or final prospectus, as
such Investor may reasonably request from time to time in order to facilitate
the disposition of the Registrable Securities owned by such Investor.

 

A-7

 

(e)   Neither the Company nor any
Subsidiary (as defined in the Securities Purchase Agreement) nor affiliate
thereof shall identify any Buyer as an underwriter in any public disclosure or
filing with the SEC or any Principal Market (as defined in the Securities
Purchase Agreement) or any Eligible Market (as defined in the Securities
Purchase Agreement) and any Buyer being deemed an underwriter by the SEC shall
not relieve the Company of any obligations it has under this Agreement or any
other Transaction Document (as defined in the Securities Purchase Agreement) provided,
however, that the foregoing shall not prohibit the Company from
including the disclosure found in the “Plan of Distribution” section attached
hereto as Exhibit B in the Registration Statement.  In addition, if any Buyer is an underwriter
or deemed an underwriter by the SEC rules and such Buyer refuses to be
identified as an underwriter or deemed underwriter in the Registration
Statement, such Buyer’s Registrable Securities shall not be included in the
Registration Statement and the Company shall not be treated as if it did not
register the Initial Registrable Securities or Additional Registrable
Securities, as applicable, due to such Buyer’s refusal and the Buyer not be
entitled to any Registration Delay Payments.

(f)    The Company shall use its
best efforts to (i) register and qualify, unless an exemption from registration
and qualification applies, the resale by Investors of the Registrable
Securities covered by a Registration Statement under such other securities or “blue
sky” laws of all applicable jurisdictions in the United States, (ii) prepare
and file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all other actions reasonably necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection therewith or as a
condition thereto to (x) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(f), (y)
subject itself to general taxation in any such jurisdiction, or (z) file a
general consent to service of process in any such jurisdiction.  The Company shall promptly notify Legal
Counsel and each Investor who holds Registrable Securities of the receipt by
the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or “blue sky” laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.

(g)   The Company shall notify
Legal Counsel and each Investor in writing of the happening of any event, as
promptly as practicable after becoming aware of such event, as a result of
which the prospectus included in a Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading
(provided that in no event shall such notice contain any material, nonpublic
information), and, subject to Section 3(r), promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). 
The Company shall also promptly notify Legal Counsel and each Investor
in writing (i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and when 

 

A-8

 

a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and
each Investor by facsimile or e-mail on the same day of such effectiveness and
by overnight mail), (ii) of any request by the SEC for amendments or supplements
to a Registration Statement or related prospectus or related information, and
(iii) of the Company’s reasonable determination that a post-effective amendment
to a Registration Statement would be appropriate.

(h)   The Company shall use its
best efforts to prevent the issuance of any stop order or other suspension of
effectiveness of a Registration Statement, or the suspension of the
qualification of any of the Registrable Securities for sale in any jurisdiction
and, if such an order or suspension is issued, to obtain the withdrawal of such
order or suspension at the earliest possible moment and to notify Legal Counsel
and each Investor who holds Registrable Securities being sold of the issuance
of such order and the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.

(i)    Upon the written request of
any Investor in connection with such Investor’s due diligence requirements, if
any, the Company shall make available for inspection by (i) any Investor, (ii)
Legal Counsel and (iii) one firm of accountants or other agents retained by the
Investors (collectively, the “Inspectors”),
all pertinent financial and other records, and pertinent corporate documents
and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each
Inspector, and cause the Company’s officers, directors and employees, counsel
and the Company’s independent certified public accountants to supply all
information which may be necessary and any Inspector may reasonably request;
provided, however, that each Inspector shall agree to hold in strict confidence
and shall not make any disclosure (except to an Investor) or use of any Record
or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the 1933 Act, (b) the release of such Records is ordered pursuant to a
final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
Agreement.  Each Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.  Nothing herein (or in any other confidentiality
agreement between the Company and any Investor) shall be deemed to limit the
Investors’ ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations.

(j)    The Company shall hold in
confidence and not make any disclosure of information concerning an Investor
provided to the Company unless (i) disclosure of such information is necessary
to comply with federal or state securities laws, (ii) the disclosure of such
information is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other final, non-appealable order from a court or
governmental body of competent jurisdiction, or (iv) such information has been
made generally available to the public other than by disclosure in violation of
this Agreement or any other agreement. 
The Company agrees that it shall, upon learning that 

 

A-9

 

disclosure
of such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor’s
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

(k)   The Company shall use its
reasonable best efforts either to (i) cause all of the Registrable Securities
covered by a Registration Statement to be listed on each securities exchange on
which securities of the same class or series issued by the Company are then
listed, if any, if the listing of such Registrable Securities is then permitted
under the rules of such exchange or (ii) secure the inclusion for quotation of
all of the Registrable Securities on The American Stock Exchange, or (iii) if,
despite the Company’s reasonable best efforts to satisfy the preceding clauses
(i) and (ii) the Company is unsuccessful in satisfying the preceding clauses
(i) and (ii), to secure the inclusion for quotation on The New York Stock
Exchange, The NASDAQ Global Market, The NASDAQ Global Select Market or the
NASDAQ Capital Market for such Registrable Securities and, without limiting the
generality of the foregoing, to use its best efforts to arrange for at least
two market makers to register with the Financial Industry Regulatory Authority
(“FINRA”) as such with respect to such Registrable Securities.  The Company shall pay all fees and expenses
in connection with satisfying its obligation under this Section 3(k).

(l)    The Company shall cooperate
with the Investors who hold Registrable Securities being offered and, to the
extent applicable, facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legend) representing the Registrable
Securities to be offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
Investors may reasonably request and registered in such names as the Investors
may request.

(m)  If requested by an Investor,
the Company (i) shall as soon as practicable but in no event later than (a)
five (5) days after the receipt of notice from such Investor, incorporate in a
prospectus supplement or (b) forty-five days after the receipt of notice from such
Investor incorporate into a post-effective amendment such information as an
Investor reasonably requests to be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being offered
or sold, the purchase price being paid therefor and any other terms of the
offering of the Registrable Securities to be sold in such offering; (ii) shall
make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) shall supplement
or make amendments to any Registration Statement if reasonably requested by an
Investor holding any Registrable Securities.

(n)   The Company shall use its
best efforts to cause the Registrable Securities covered by the Registration
Statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary to consummate the disposition of such
Registrable Securities.

(o)   The Company shall make
generally available to its security holders as soon as practical, including via
the EDGAR system of the SEC or via a public announcement, but not later than
ninety (90) days after the close of the period covered thereby, an earnings 

 

A-10

 

statement
(in form complying with, and in the manner provided by, the provisions of Rule
158 under the 1933 Act) covering a twelve-month period beginning not later than
the first day of the Company’s fiscal quarter next following the Effective Date
of a Registration Statement.

(p)   The Company shall otherwise
use its best efforts to comply with all applicable rules and regulations of the
SEC in connection with any registration hereunder.

(q)   Within two (2) Business Days
after a Registration Statement which covers Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
for the Company to deliver, to the transfer agent for such Registrable
Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) confirmation that such Registration
Statement has been declared effective by the SEC in the form attached hereto as
Exhibit A.

(r)    Notwithstanding anything to
the contrary herein, at any time after the Effective Date, the Company may
delay the disclosure of material, non-public information concerning the Company
the disclosure of which at the time is not, in the good faith opinion of the
Board of Directors of the Company and its counsel, in the best interest of the
Company and, in the opinion of counsel to the Company, otherwise required (a “Grace Period”); provided, that the Company
shall promptly (i) notify the Investors in writing of the existence of
material, non-public information giving rise to a Grace Period (provided that
in each notice the Company will not disclose the content of such material,
non-public information to the Investors) and the date on which the Grace Period
will begin, and (ii) notify the Investors in writing of the date on which the
Grace Period ends; and, provided further, that no Grace Period shall exceed
twelve (12) consecutive days and during any three hundred sixty five (365) day
period such Grace Periods shall not exceed an aggregate of twenty-five (25)
days and the first day of any Grace Period must be at least five (5) trading
days after the last day of any prior Grace Period (each, an “Allowable Grace Period”).  For purposes of determining the length of a
Grace Period above, the Grace Period shall begin on and include the date the
Investors receive the notice referred to in clause (i) and shall end on and
include the later of the date the Investors receive the notice referred to in
clause (ii) and the date referred to in such notice.  The provisions of Section 3(g) hereof shall
not be applicable during the period of any Allowable Grace Period.  Upon expiration of the Grace Period, the
Company shall again be bound by the first sentence of Section 3(g) with respect
to the information giving rise thereto unless such material, non-public
information is no longer applicable. 
Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement
in connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale, and delivered a copy of the
prospectus included as part of the applicable Registration Statement (unless an
exemption from such delivery requirement exists), prior to the Investor’s
receipt of the notice of a Grace Period and for which the Investor has not yet
settled.

13.   Obligations of the
Investors.

(a)   At least ten (10) Business
Days prior to the first anticipated filing date of a Registration Statement,
the Company shall notify each Investor in writing of the information the
Company requires from each such Investor if such Investor elects to have any of
such 

 

A-11

 

Investor’s
Registrable Securities included in such Registration Statement.  It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it, as shall be reasonably
required to effect and maintain the effectiveness of the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.

(b)   Each Investor, by such
Investor’s acceptance of the Registrable Securities, agrees to cooperate with
the Company as reasonably requested by the Company in connection with the
preparation and filing of any Registration Statement hereunder, unless such
Investor has notified the Company in writing of such Investor’s election to
exclude all of such Investor’s Registrable Securities from such Registration
Statement.

(c)   Each Investor agrees that, upon
receipt of any notice from the Company of the happening of any event of the
kind described in Section 3(h) or the first sentence of 3(g), such Investor
will immediately discontinue disposition of Registrable Securities pursuant to
any Registration Statement(s) covering such Registrable Securities until with
regard to a discontinuance pursuant to Section 3(h), such Investor’s receipt of
a written notice from the Company that there is no further event under Section
3(h) in effect and with regard to a discontinuance pursuant to the first
sentence of Section 3(g), such Investor’s receipt of the copies of the
supplemented or amended prospectus contemplated by the first sentence of 3(g)
or receipt of notice that no supplement or amendment is required.  Notwithstanding anything to the contrary, the
Company shall cause its transfer agent to deliver unlegended shares of Common
Stock to a transferee of an Investor in accordance with the terms of the
Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for
sale prior to the Investor’s receipt of a notice from the Company of the
happening of any event of the kind described in Section 3(h) or the first
sentence of 3(g) and for which the Investor has not yet settled.

(d)   Each Investor covenants and
agrees that it will comply with the prospectus delivery requirements of the
1933 Act as applicable to it or an exemption therefrom in connection with sales
of Registrable Securities pursuant to the Registration Statement.

14.   Expenses of Registration.

All
reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant
to Sections 2 and 3, including, without limitation, all registration, listing
and qualifications fees, printers and accounting fees, and fees and
disbursements of counsel for the Company shall be paid by the Company.  The Company shall also reimburse the
Investors for the fees and disbursements of Legal Counsel in connection with
registration, filing or qualification pursuant to Sections 2 and 3 of this
Agreement which amount shall be limited to $15,000 for each such registration,
filing or qualification.

 

 

 

A-12

15.   Indemnification.

In
the event any Registrable Securities are included in a Registration Statement
under this Agreement:

(a)   To the fullest extent
permitted by law, the Company will, and hereby does, indemnify, hold harmless
and defend each Investor, the directors, officers, members, partners,
employees, agents, representatives of, and each Person, if any, who controls
any Investor within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Person”), against any losses,
claims, damages, liabilities, judgments, fines, penalties, charges, costs,
reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or
several, other than consequential, indirect or incidental damages
(collectively, “Claims”) incurred
in investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto (“Indemnified Damages”),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon:  (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
“blue sky” laws of any jurisdiction in which Registrable Securities are offered
(“Blue Sky Filing”), or the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii) any
untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading,
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement or (iv) any
violation of this Agreement (the matters in the foregoing clauses (i) through
(iv) being, collectively, “Violations”).  Subject to Section 6(c), the Company shall
reimburse the Indemnified Persons, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred
by them in connection with investigating or defending any such Claim.  Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section
6(a):  (i) shall not apply to a Claim by
an Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person for such Indemnified Person expressly for
use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto, if such prospectus was timely
made available by the Company pursuant to Section 3(d) and (ii) shall not apply
to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed.  Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer
of the Registrable Securities by the Investors pursuant to Section 9.

 

A-13

 

(b)   In connection with any
Registration Statement in which an Investor is participating, each such
Investor agrees to severally and not jointly indemnify, hold harmless and
defend, to the same extent and in the same manner as is set forth in Section
6(a), the Company, each of its directors, each of its officers who signs the
Registration Statement and each Person, if any, who controls the Company within
the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Party”), against any Claim or
Indemnified Damages to which any of them may become subject, under the 1933
Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages
arise out of or are based upon any Violation, in each case to the extent, and
only to the extent, that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and, subject
to Section 6(c), such Investor will reimburse any legal or other expenses
reasonably incurred by an Indemnified Party in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution contained
in Section 7 shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor,
which consent shall not be unreasonably withheld or delayed; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only
that amount of a Claim or Indemnified Damages as does not exceed the net
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. 
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.

(c)   Promptly after receipt by an
Indemnified Person or Indemnified Party under this Section 6 of notice of the
commencement of any action or proceeding (including any governmental action or
proceeding) involving a Claim, such Indemnified Person or Indemnified Party
shall, if a Claim in respect thereof is to be made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party
and the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel with the fees and expenses of not more than
one counsel for such Indemnified Person or Indemnified Party to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential differing interests between such Indemnified Person
or Indemnified Party and any other party represented by such counsel in such
proceeding.  In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding at least a majority  in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates.  The Indemnified Party or Indemnified Person
shall cooperate reasonably with the indemnifying party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party
and shall furnish to the indemnifying party all information reasonably
available to the Indemnified Party or Indemnified Person which relates to such
action or Claim.  The indemnifying party
shall keep the Indemnified Party or Indemnified Person fully apprised at all
times as to the status of the defense or any settlement 

 

A-14

 

negotiations
with respect thereto.  No indemnifying
party shall be liable for any settlement of any action, claim or proceeding
effected without its prior written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent.  No indemnifying party shall,
without the prior written consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such Claim or litigation, and such
settlement shall not include any admission as to fault on the part of the
Indemnified Party or the Indemnified Person. 
Following indemnification as provided for hereunder, the indemnifying
party shall be subrogated to all rights of the Indemnified Party or Indemnified
Person with respect to all third parties, firms or corporations relating to the
matter for which indemnification has been made. 
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.

(d)   The indemnification required
by this Section 6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
Indemnified Damages are incurred.

(e)   The indemnity agreements
contained herein shall be in addition to 
(i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.

16.   Contribution.

To
the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under
Section 6 to the fullest extent permitted by law; provided, however, that:  (i) no Person involved in the sale of Registrable
Securities which Person is guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) in connection with such sale shall be
entitled to contribution from any Person involved in such sale of Registrable
Securities who was not guilty of fraudulent misrepresentation; and (ii)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities pursuant to such Registration Statement.

17.   Reports Under the 1934
Act.

With
a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration (“Rule 144”),
the Company agrees to:

 

A-15

 

(a)   make and keep public
information available, as those terms are understood and defined in Rule 144;

(b)   file with the SEC in a
timely manner all reports and other documents required of the Company under the
1933 Act and the 1934 Act so long as the Company remains subject to such
requirements (it being understood that nothing herein shall limit the Company’s
obligations under Section 4(c) of the Securities Purchase Agreement) and the
filing of such reports and other documents is required for the applicable
provisions of Rule 144; and

(c)   furnish to each Investor so
long as such Investor owns Registrable Securities, promptly upon request, (i) a
written statement by the Company, if true, that it has complied with the
reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.

18.   Assignment of
Registration Rights.

The
rights under this Agreement shall be automatically assignable by the Investors
to any transferee of all or any portion of such Investor’s Registrable
Securities if:  (i) the Investor agrees
in writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment; (ii) the Company is, within a reasonable time after such transfer
or assignment, furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned; (iii) immediately
following such transfer or assignment the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act or
applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.

19.   Amendment of Registration
Rights.

Provisions
of this Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Required
Holders.  Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each Investor
and the Company.  No such amendment shall
be effective to the extent that it applies to less than all of the holders of
the Registrable Securities.  No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of this Agreement unless the
same consideration also is offered to all of the parties to this Agreement.

20.   Miscellaneous.

(a)   A Person is deemed to be a
holder of Registrable Securities whenever such Person owns or is deemed to own
of record such Registrable Securities. 
If the Company receives conflicting instructions, notices or elections
from two or more Persons with respect to 

 

A-16

 

the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the such record owner of such
Registrable Securities.

(b)   Any notices, consents,
waivers or other communications required or permitted to be given under the
terms of this Agreement must be in writing and will be deemed to have been
delivered:  (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. 
The addresses and facsimile numbers for such communications shall be:

 

                If to the Company:

 

Cano Petroleum, Inc.

801 Cherry Street

Suite 3200

Fort Worth, Texas 76102

Telephone:            (817) 698-0900

Facsimile:               (817) 334-0222

Attention:              Morris B. Smith and Phillip Feiner

 

With a copy to:

 

W. Bruce Newsome

Haynes and Boone, LLP

901 Main St., Suite 3100

Dallas, TX 75202

Telephone:            (214) 651-5119

Facsimile:               (214) 200-0636

 

If to Legal Counsel:

 

                                                Schulte Roth
& Zabel LLP

                                                919 Third
Avenue

                                                New York, New
York  10022

                                                Telephone:  (212) 756-2000

                                                Facsimile:  (212) 593-5955

                                                Attention:  Eleazer N. Klein, Esq.

 

If
to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers attached hereto, with copies to such Buyer’s representatives as set
forth on the Schedule of Buyers, or to such other address and/or facsimile
number and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party pursuant to this
Section.  Written confirmation of receipt
(A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender’s
facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of 

 

A-17

 

such
transmission or (C) provided by a courier or overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.

(c)   Failure of any party to
exercise any right or remedy under this Agreement or otherwise, or delay by a
party in exercising such right or remedy, shall not operate as a waiver
thereof.

(d)   All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New York.  Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof.  Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY.

(e)   If any provision of this
Agreement is prohibited by law or otherwise determined to be invalid or
unenforceable by a court of competent jurisdiction, the provision that would
otherwise be prohibited, invalid or unenforceable shall be deemed amended to
apply to the broadest extent that it would be valid and enforceable, and the
invalidity or unenforceability of such provision shall not affect the validity
of the remaining provisions of this Agreement so long as this Agreement as so
modified continues to express, without material change, the original intentions
of the parties as to the subject matter hereof and the prohibited nature,
invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise
be conferred upon the parties.  The
parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

(f)    This Agreement, the other
Transaction Documents (as defined in the Securities Purchase Agreement) and the
instruments referenced herein and therein constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and thereof.  There are no restrictions, promises,
warranties or undertakings, other than those set forth or 

 

A-18

 

referred
to herein and therein.  This Agreement,
the other Transaction Documents and the instruments referenced herein and
therein supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.

(g)   Subject to the requirements
of Section 9, this Agreement shall inure to the benefit of and be binding upon
the permitted successors and assigns of each of the parties hereto.

(h)   The headings in this
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof.

(i)    This Agreement may be
executed in identical counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same agreement.  This Agreement, once executed by a party, may
be delivered to the other party hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.

(j)    Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as any other party may reasonably request in order
to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.

(k)   All consents and other
determinations required to be made by the Investors pursuant to this Agreement
shall be made, unless otherwise specified in this Agreement, by the Required
Holders.

(l)    The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent and no rules of strict construction will be applied against
any party.

(m)  This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.

(n)   Notwithstanding anything to
the contrary contained herein, no Buyer or holder of Registrable Securities
shall be entitled to consequential, indirect or incidental damages
hereunder.  However, the foregoing shall
not in any way limit a Buyer or holder of Registrable Securities from being
reimbursed for its costs, fees or expenses, including, without limitation,
reasonable attorneys’ fees and disbursements in connection with any of its
rights and remedies hereunder.

(o)   The obligations of each
Investor hereunder are several and not joint with the obligations of any other
Investor, and no provision of this Agreement is intended to confer any obligations
on any Investor vis-à-vis any other Investor. 
Nothing contained herein, and no action taken by any Investor pursuant
hereto, shall be deemed to constitute the Investors as a partnership, an
association, a joint venture or any other kind of entity, or create a 

 

A-19

 

presumption
that the Investors are in any way acting in concert or as a group with respect
to such obligations or the transactions contemplated herein.

* * * * * *

 

 

 

 

A-20

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Registration Rights
Agreement to be duly executed as of the date first written above.

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
  CANO
  PETROLEUM, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:  
  S. Jeffrey Johnson

  Title:    Chairman and CEO

  

 

 

 

A-21

 

IN WITNESS WHEREOF, each Buyer and the Company
have caused their respective signature page to this Registration Rights
Agreement to be duly executed as of the date first written above.

	
   

  	
  BUYERS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:  
  

  Title:    

  

 

 

 

A-22

 

SCHEDULE OF BUYERS

 

	
  

  Buyer

  	
   

  	
   

  	
  Buyer
  Address

  and Facsimile Number

  
	
   

  	
   

  	
   

  
	
  [Name]

  	
   

  	
  [Address]

  

 

 

 

A-23

 

 

EXHIBIT A

 

NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

 

 

               
     , 2007

 

 

Via FedEx

 

Interwest Transfer Company

1981 East Murray Holladay Rd., Suite 100

Salt Lake City, Utah 84117

ATTN:      Lorraine Smith

 

 

Re:     Cano Petroleum, Inc.

 

 

Ladies
and Gentlemen:

 

We are counsel to Cano Petroleum, Inc., a Delaware corporation
(the “Company”), and have
represented the Company in connection with that certain Securities Purchase
Agreement, dated as of October    , 2007 (the “Securities  Purchase Agreement”), entered into by and among the Company
and the buyers named therein (collectively, the “Holders”) pursuant to which the Company issued to the Holders
its shares of the Company’s Common Stock, par value $0.0001 per share (the “Common Stock”).  Pursuant to the Securities Purchase
Agreement, the Company also has entered into a Registration Rights Agreement
with the Holders (the “Registration Rights
Agreement”) pursuant to which the Company agreed, among other
things, to register the resale of the Registrable Securities (as defined in the
Registration Rights Agreement) under the Securities Act of 1933, as amended
(the “1933 Act”).  In connection with the Company’s obligations
under the Registration Rights Agreement, on           
    , 2007, the Company filed a Registration Statement on
Form S-3 (File No. 333-       ) (the “Registration Statement”) with the
Securities and Exchange Commission (the “SEC”)
relating to the Registrable Securities which names each of the Holders as a
selling stockholder thereunder.

 

In connection with the foregoing, we advise you that a member of the
SEC’s staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at      
P.M. EST on                , 2007
and we have no knowledge, after telephonic inquiry of a member of the SEC’s
staff, that any stop order suspending its effectiveness has been issued or that
any proceedings for that purpose are pending before, or threatened by, the SEC
and the Registrable Securities are available for resale under the 1933 Act
pursuant to the Registration Statement.

 

 

A-24

 

 

Subject to the specific prohibitions contained in the Registration Rights
Agreement regarding the inability to use the Registration Statement under
specific circumstances (the “Registration Statement
Limitations”) and in reliance upon the Holder’s representations and
covenants in Section 2(g) of the Securities Purchase Agreement, this letter shall serve as our standing instruction to you
that the shares of Common Stock are freely transferable by the Holders pursuant
to the Registration Statement provided that the prospectus delivery
requirements, if any, are complied with. 
Subject to the Registration Statement Limitations, you need not require
further letters from us to effect any future legend-free issuance or reissuance
of shares of Common Stock to the Holders as contemplated by the Company’s
Transfer Agent Instructions dated October    , 2007.  This letter shall serve as our standing
instruction with regard to this matter.

 

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  HAYNES AND BOONE, LLP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  W.
  Bruce Newsome

  

 

 

 

 

cc:                [Buyers]

 

A-25

 

EXHIBIT B

 

SELLING
STOCKHOLDERS

The shares of Common Stock being offered by
the Selling Stockholders are those previously issued to the Selling
Stockholders.  For additional information
regarding the issuance of those shares of Common Stock, see “Private Placement
of Common Shares” above.  We are
registering the shares of Common Stock in order to permit the selling
stockholders to offer the shares for resale from time to time.  Except for [      ][Discuss necessary relationships] and
the ownership of the shares of Common Stock issued pursuant to the Securities
Purchase Agreement, the selling stockholders have not had any material
relationship with us within the past three years.

The table below lists the Selling
Stockholders and other information regarding the beneficial ownership of the
shares of Common Stock by each of the Selling Stockholders.  The second column lists the number of shares
of Common Stock beneficially owned by each Selling Stockholder, based on its
ownership of the shares of Common Stock and any securities exercisable into or
convertible into Common Stock, as of           ,
200  .

The third column lists the shares of Common
Stock being offered by this prospectus by the Selling Stockholders.

In accordance with the terms of a registration
rights agreement with the selling stockholders, this prospectus generally
covers the resale of 100% of the number of shares of Common Stock issued as of
the trading day immediately preceding the date the registration statement is
initially filed with the SEC.  The
fourth column assumes the sale of all of the shares offered by the Selling
Stockholders pursuant to this prospectus.

The Selling Stockholders may sell all, some
or none of their shares in this offering. 
See “Plan of Distribution.”

 

A-26

 

	
  Name of Selling Stockholder

  	
   

  	
  

  Number of Shares

  Beneficially Owned

  Prior to Offering

  	
   

  	
  Maximum Number of

  Shares to be Sold Pursuant

  to this Prospectus

  	
   

  	
  

  Number of Shares

  Beneficially Owned

  After Offering

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Buyer] (1)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Other Buyers]

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

(1)

 

 

A-27

 

PLAN OF
DISTRIBUTION

 

We are registering the shares of Common Stock
previously issued to permit the resale of these shares of Common Stock by the
holders of the Common Stock from time to time after the date of this
prospectus.  We will not receive any of the
proceeds from the sale by the selling stockholders of the shares of Common
Stock.  We will bear all fees and
expenses incident to our obligation to register the shares of Common Stock.

The selling stockholders may sell all or a
portion of the shares of Common Stock beneficially owned by them and offered
hereby from time to time directly or through one or more underwriters,
broker-dealers or agents.  If the shares
of Common Stock are sold through underwriters or broker-dealers, the selling
stockholders will be responsible for underwriting discounts or commissions or
agent’s commissions.  The shares of
Common Stock may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of the sale, at varying prices determined
at the time of sale, or at negotiated prices. 
These sales may be effected in transactions, which may involve crosses
or block transactions,

•                  on any national
securities exchange or quotation service on which the securities may be listed
or quoted at the time of sale;

•                  in the
over-the-counter market;

•                  in transactions
otherwise than on these exchanges or systems or in the over-the-counter market;

•                  through the
writing of options, whether such options are listed on an options exchange or
otherwise;

•                  ordinary brokerage
transactions and transactions in which the broker-dealer solicits purchasers;

•                  block trades in
which the broker-dealer will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the transaction;

•                  purchases by a
broker-dealer as principal and resale by the broker-dealer for its account;

•                  an exchange
distribution in accordance with the rules of the applicable exchange;

•                  privately
negotiated transactions;

•                  short sales;

•                  sales pursuant
to Rule 144;

•                  broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share;

 

A-28

 

•                  a combination
of any such methods of sale; and

•                  any other
method permitted pursuant to applicable law.

If the selling stockholders effect such
transactions by selling shares of Common Stock to or through underwriters,
broker-dealers or agents, such underwriters, broker-dealers or agents may
receive commissions in the form of discounts, concessions or commissions from
the selling stockholders or commissions from purchasers of the shares of Common
Stock for whom they may act as agent or to whom they may sell as principal
(which discounts, concessions or commissions as to particular underwriters,
broker-dealers or agents may be in excess of those customary in the types of
transactions involved).  In connection
with sales of the shares of Common Stock or otherwise, the selling stockholders
may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of Common Stock in the course of hedging in
positions they assume.  The selling
stockholders may also sell shares of Common Stock short and deliver shares of
Common Stock covered by this prospectus to close out short positions and to
return borrowed shares in connection with such short sales.  The selling stockholders may also loan or
pledge shares of Common Stock to broker-dealers that in turn may sell such
shares.

The selling stockholders may pledge or grant
a security interest in some or all of the shares of Common Stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of Common Stock from
time to time pursuant to this prospectus or any amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act of
1933, as amended, amending, if necessary, the list of selling stockholders to
include, pursuant to prospectus amendment or prospectus supplement, the
pledgee, transferee or other successors in interest as selling stockholders
under this prospectus.  The selling
stockholders also may transfer and donate the shares of Common Stock in other circumstances
in which case the transferees, donees, pledgees or other successors in interest
will be the selling beneficial owners for purposes of this prospectus.

The selling stockholders and any
broker-dealer participating in the distribution of the shares of Common Stock
may be deemed to be “underwriters” within the meaning of the Securities Act,
and any commission paid, or any discounts or concessions allowed to, any such
broker-dealer may be deemed to be underwriting commissions or discounts under
the Securities Act.  At the time a
particular offering of the shares of Common Stock is made, a prospectus
supplement, if required, will be distributed which will set forth the aggregate
amount of shares of Common Stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling
stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to broker-dealers.

Under the securities laws of some states, the
shares of Common Stock may be sold in such states only through registered or
licensed brokers or dealers.  In
addition, in some states the shares of Common Stock may not be sold unless such
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.

 

A-29

 

There can be no assurance that any selling
stockholder will sell any or all of the shares of Common Stock registered
pursuant to the registration statement, of which this prospectus forms a part.

The selling stockholders and any other person
participating in such distribution will be subject to applicable provisions of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, including, without limitation, Regulation M of the Exchange Act,
which may limit the timing of purchases and sales of any of the shares of
Common Stock by the selling stockholders and any other participating
person.  Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of Common
Stock to engage in market-making activities with respect to the shares of
Common Stock.  All of the foregoing may
affect the marketability of the shares of Common Stock and the ability of any
person or entity to engage in market-making activities with respect to the
shares of Common Stock.

We will pay all expenses of the registration
of the shares of Common Stock pursuant to the registration rights agreement,
estimated to be $[     ] in total, including, without
limitation, Securities and Exchange Commission filing fees and expenses of
compliance with state securities or “blue sky” laws; provided, however, that a
selling stockholder will pay all underwriting discounts and selling
commissions, if any.  We will indemnify
the selling stockholders against liabilities, including some liabilities under
the Securities Act, in accordance with the registration rights agreements, or
the selling stockholders will be entitled to contribution.  We may be indemnified by the selling
stockholders against civil liabilities, including liabilities under the
Securities Act, that may arise from any written information furnished to us by
the selling stockholder specifically for use in this prospectus, in accordance
with the related registration rights agreement, or we may be entitled to
contribution.

Once sold under the registration statement,
of which this prospectus forms a part, the shares of Common Stock will be
freely tradable in the hands of persons other than our affiliates.

 

 

 

A-30

EXHIBIT B

TRANSFER
AGENT INSTRUCTIONS

CANO PETROLEUM, INC.

October    ,
2007

Interwest Transfer Company

1981 East Murray Holladay Rd. Suite 100

Salt Lake City, Utah 84117

 

Attention:              Lorraine Smith

 

Ladies and Gentlemen:

Reference is made to that certain Securities Purchase Agreement, dated
as of October    , 2007 (the “Agreement”),
by and among Cano Petroleum, Inc., a Delaware corporation (the “Company”), and the investors named on the
Schedule of Buyers attached thereto (collectively, the “Holders”), pursuant to which the Company is
issuing to the Holders shares (the “Common
Shares”) of Common Stock of the Company, par value $0.0001 per share
(the “Common Stock”).

As required by the Agreement and pursuant to the Holders’
representations and covenants contained in Section 2(g) of the Agreement, this
letter shall serve as our irrevocable authorization and direction to you
(provided that you are the transfer agent of the Company at such time), subject
to any stop transfer instructions that we may issue to you from time to time,
if at all, to issue shares of Common Stock upon transfer or resale of the
Common Shares.

You acknowledge and agree that so long as you have previously received
(a) written confirmation from the Company’s legal counsel that either (i) a registration
statement covering resales of the Common Shares has been declared effective by
the Securities and Exchange Commission (the “SEC”)
under the Securities Act of 1933, as amended (the “1933 Act”) and you have not received a notice from the Company
that resale of the Common Shares under a registration statement are not
permitted at that time (a “No Registered Resale
Notice”) pursuant to the terms of the Registration Rights Agreement
dated as of October    , 2007 by and among the Company and the
Holders, or (ii) sales of the Common Shares may be made in conformity with Rule
144 under the 1933 Act (“Rule 144”) and 
(b) if applicable, a copy of such registration statement and you have
not received a No Registered Resale Notice, then within three (3) business days
after your receipt of a notice of transfer, you
shall issue the certificates representing the Common Shares registered in the
names of such transferees, and such certificates shall not bear any
legend restricting transfer of the Common Shares thereby and should not be
subject to any stop-transfer restriction; provided, however, that
if such Common Shares are not registered for resale under the 1933 Act or not
able to be sold under Rule 144, then the certificates for such Common Shares
shall bear the following legend:

 

 

B-1

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF A LAW FIRM REASONABLY ACCEPTABLE TO THE COMPANY
(WITH SCHULTE, ROTH & ZABEL, LLP BEING DEEMED ACCEPTABLE) IN A REASONABLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

A form of written confirmation from the Company’s outside legal counsel
that a registration statement covering resales of the Common Shares has been
declared effective by the SEC under the 1933 Act is attached hereto as Exhibit
I.

Please execute this letter in the space
indicated to acknowledge your agreement to act in accordance with these
instructions.  Should you have any
questions concerning this matter, please contact me at 817-869-1062.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  
	
   

  	
  CANO PETROLEUM, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Phillip Feiner

  
	
   

  	
  Title:

  	
  Assistant General Counsel

  
						

 

THE FOREGOING INSTRUCTIONS
ARE

ACKNOWLEDGED AND AGREED TO

this      day of October, 2007

INTERWEST TRANSFER COMPANY

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  

 

Enclosures

cc:                               [Buyers]

Eleazer N. Klein, Esq.

 

 

B-2

 

EXHIBIT I

NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

 

 

               
     , 2007

 

 

Via FedEx

 

Interwest Transfer Company

1981 East Murray Holladay Rd., Suite 100

Salt Lake City, Utah 84117

ATTN:      Lorraine Smith

 

 

Re:     Cano Petroleum, Inc.

 

 

Ladies
and Gentlemen:

 

We are counsel to Cano Petroleum, Inc., a Delaware corporation
(the “Company”), and have
represented the Company in connection with that certain Securities Purchase
Agreement, dated as of October    , 2007 (the “Securities  Purchase Agreement”), entered into by and among the Company
and the buyers named therein (collectively, the “Holders”) pursuant to which the Company issued to the Holders
its shares of the Company’s Common Stock, par value $0.0001 per share (the “Common Stock”).  Pursuant to the Securities Purchase
Agreement, the Company also has entered into a Registration Rights Agreement
with the Holders (the “Registration Rights
Agreement”) pursuant to which the Company agreed, among other
things, to register the resale of the Registrable Securities (as defined in the
Registration Rights Agreement) under the Securities Act of 1933, as amended
(the “1933 Act”).  In connection with the Company’s obligations
under the Registration Rights Agreement, on             
    , 2007, the Company filed a Registration Statement on
Form S-3 (File No. 333-        )
(the “Registration Statement”) with
the Securities and Exchange Commission (the “SEC”)
relating to the Registrable Securities which names each of the Holders as a
selling stockholder thereunder.

 

In connection with the foregoing, we advise you that a member of the
SEC’s staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at       
P.M. EST on             
    , 2007
and we have no knowledge, after telephonic inquiry of a member of the SEC’s
staff, that any stop order suspending its effectiveness has been issued or that
any proceedings for that purpose are pending before, or threatened by, the SEC
and the Registrable Securities are available for resale under the 1933 Act
pursuant to the Registration Statement.

 

 

B-3

 

Subject to the specific prohibitions contained in the Registration
Rights Agreement regarding the inability to use the Registration Statement
under specific circumstances (the “Registration Statement Limitations”)
and in reliance upon the Holder’s representations and covenants in Section 2(g)
of the Securities Purchase Agreement, this letter
shall serve as our standing instruction to you that the shares of Common Stock
are freely transferable by the Holders pursuant to the Registration Statement
provided that the prospectus delivery requirements, if any, are complied
with.  Subject to the Registration
Statement Limitations, you need not require further letters from us to effect
any future legend-free issuance or reissuance of shares of Common Stock to the
Holders as contemplated by the Company’s Transfer Agent Instructions dated
October    , 2007.  This
letter shall serve as our standing instruction with regard to this matter.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  HAYNES AND BOONE, LLP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  W.
  Bruce Newsome

  

 

 

cc:                [Buyers]

 

 

 

B-4

EXHIBIT
C

 

CANO
PETROLEUM, INC.

SECRETARY’S
CERTIFICATE

 

 

The
undersigned hereby certifies that he is the duly elected, qualified and acting
Secretary of Cano Petroleum, Inc., a Delaware corporation (the “Company”), and that as such he is
authorized to execute and deliver this certificate in the name and on behalf of
the Company and in connection with the Securities Purchase Agreement, dated as
of October    , 2007, by and among the Company and the investors
listed on the Schedule of Buyers attached thereto (the “Securities Purchase Agreement”), and
further certifies in his official capacity, in the name and on behalf of the
Company, the items set forth below. 
Capitalized terms used but not otherwise defined herein shall have the
meaning set forth in the Securities Purchase Agreement.

1.                                       Attached hereto as Exhibit
A is a true, correct and complete copy of the resolutions duly adopted by
the Board of Directors of the Company at a duly called meeting of the Board of
Directors on October 23, 2007 and resolutions duly adopted by the Board of
Directors of the Company by unanimous written consent dated as of October 29,
2007 (“Board Resolutions”) and a true, correct and complete copy of the
resolutions of the Negotiation Committee (as defined in the Board Resolutions)
duly adopted by the Negotiation Committee pursuant to a unanimous written
consent of the Negotiation Committee dated October    ,
2007.  Except as set forth in subsequent
resolutions included herewith, such resolutions have not in any way been
amended, modified, revoked or rescinded, have been in full force and effect
since their adoption to and including the date hereof and are now in full force
and effect.

2.                                       Attached hereto as Exhibit
B is a true, correct and complete copy of the Certificate of Incorporation
of the Company, together with any and all amendments thereto currently in
effect, and no action has been taken to further amend, modify or repeal such
Certificate of Incorporation, the same being in full force and effect in the
attached form as of the date hereof.

3.                                       Attached hereto as Exhibit
C is a true, correct and complete copy of the Bylaws of the Company and any
and all amendments thereto currently in effect, and no action has been taken to
further amend, modify or repeal such Bylaws, the same being in full force and
effect in the attached form as of the date hereof.

4.                                       Each person listed below has
been duly elected or appointed to the position(s) indicated opposite his name
and is duly authorized to sign the Securities Purchase Agreement and each of
the Transaction Documents on behalf of the Company, and the signature appearing
opposite such person’s name below is such person’s genuine signature.

 

C-1

 

 

 

	
  Name

  	
   

  	
   

  	
  Position

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  S.
  Jeffrey Johnson

  	
   

  	
  Chief
  Executive Officer

  	
   

  	
   

  

 

 

IN
WITNESS WHEREOF, the undersigned has hereunto set his hand as of this     
day of November, 2007.

 

	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Phillip
  Feiner

  
	
   

  	
  Secretary

  

 

 

I,  S. Jeffrey Johnson, Chief Executive
Officer and Chairm of the Company hereby certify that Phillip Feiner is the
duly elected, qualified and acting Secretary of the Company and that the
signature set forth above is his true signature.

 

	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  S.
  Jeffrey Johnson

  
	
   

  	
  Chief
  Executive Officer and Chairman

  

 

 

 

 

C-2

 

EXHIBIT A

 

Resolutions

 

C-3

 

EXHIBIT B

Certificate of Incorporation

 

C-4

 

EXHIBIT C

Bylaws

 

 

C-5

 

 

EXHIBIT
D

 

CANO
PETROLEUM, INC.

OFFICER’S CERTIFICATE

 

                The undersigned, Chief Executive
Officer of Cano Petroleum, Inc., a Delaware corporation (the “Company”), pursuant to Section 7(d) of the
Securities Purchase Agreement, dated as of October    , 2007, by
and among the Company and the investors identified on the Schedule of Buyers
attached thereto (the “Securities Purchase
Agreement”), hereby represents, warrants and certifies to the Buyers
as follows (capitalized terms used but not otherwise defined herein shall have
the meaning set forth in the Securities Purchase Agreement):

 

1.                                       The representations and
warranties made by the Company as set forth in Section 3 of the Securities
Purchase Agreement are true and correct in all material respects (except for
those representations and warranties that are qualified by materiality or
Material Adverse Effect, which are true and correct in all respects) as of the
date hereof (except for representations and warranties that speak as of a
specific date which were true and correct on such specified date).

 

2.                                       The Company
has, in all material respects, performed or complied with all covenants,
agreements and conditions required to be performed or complied with by it at or
prior to the date hereof under the Transaction Documents.

 

 

IN WITNESS WHEREOF, the undersigned has
executed this certificate this     day of November, 2007.

 

 

 

	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  S.
  Jeffrey Johnson

  
	
   

  	
  Chief
  Executive Officer and Chairman

  

 

 

 

 

 

D-1

 

Schedule
3(a)

Subsidiaries

 

 

Pantwist,
LLC

Ladder
Companies, Inc.

Square
One Energy, Inc.

Tri-Flow,
Inc.

W.O.
Energy of Nevada, Inc.

WO
Energy, Inc.

W.O.
Operating Company, Ltd.

W.O.
Production Company, Ltd.

Cano Petro of New Mexico, Inc.

 

 

 

 

Schedules-1

 

Schedule
3(d)

Conflicts

 

 

None.

 

 

 

 

Schedules-2

 

Schedule
3(e)

Consents

 

 

None.

 

 

 

 

Schedules-3

 

Schedule
3(f)

Acknowledgment
Regarding Buyer’s Purchase of Common Shares

 

 

Trapeze
Asset Management Inc. and Trapeze Capital Corp. beneficially own more than 10%
of the Company’s common stock.

 

 

 

 

Schedules-4

 

Schedule
3(k)

Absence
of Certain Changes

 

 

None

 

 

 

 

Schedules-5

 

Schedule
3(p)

Transactions
with Affiliates

 

 

Honey Hole Production

 

We are in the process of
documenting a new agreement with R.C. Boyd Enterprises, a Delaware corporation,
to continue on as the lead sponsor of a television production called Honey Hole
(the ‘‘Honey Hole Production’’). This contract for $150,000 annually will
terminate on December 31, 2008.  Randall
Boyd, one of our current directors, is the sole shareholder of R.C. Boyd
Enterprises.

 

 

 

 

Schedules-6

 

Schedule
3(q)

Equity
Capitalization

 

 

None
(all have been disclosed in the SEC Documents).

 

 

 

 

Schedules-7

 

Schedule
3(t)

Litigation

 

 

On
March 23, 2006, the following lawsuit was filed in the 100th Judicial
District Court in Carson County, Texas; Cause No. 9840, The Tom L. and
Anne Burnett Trust, by Anne Burnett Windfohr, Windi Phillips, Ben Fortson, Jr.,
George Beggs, III and Ed Hudson, Jr. as Co-Trustees; Anne Burnett Windfohr; and
Burnett Ranches, Ltd. v. Cano Petroleum, Inc., W.O. Energy of
Nevada, Inc., W. O. Operating Company, Ltd, and WO Energy, Inc. The
plaintiffs claim that the electrical wiring and equipment of Cano or certain of
its subsidiaries relating to oil and natural gas operations started a wildfire
that began on March 12, 2006 in Carson County.  On June 21, 2007, the Judge of the 100th
Judicial District Court issued a Final Judgment (a) granting motions for
summary judgment in favor of Cano and certain of its subsidiaries on plaintiffs’
claims for (i) breach of contract/termination of an oil and gas lease; and
(ii) negligence; and (b) granting the plaintiffs’ no-evidence motion
for summary judgment on contributory negligence, assumption of risk,
repudiation and estoppel affirmative defenses asserted by Cano and certain of
its subsidiaries. The Final Judgment has been appealed.

 

On
April 28, 2006, the following lawsuit was filed in the 31st
Judicial District Court of Roberts County, Texas, Case No. 1922, Robert
and Glenda Adcock, et al. v. Cano Petroleum, Inc., W.O. Energy of
Nevada, Inc., W. O. Operating Company, Ltd, and WO Energy, Inc. (“Adcock”).

 

On
April 10, 2006, the following lawsuit was filed in the 31st Judicial
District Court of Roberts County, Texas, Case No. 1920, Joseph Craig
Hutchison and Judy Hutchison v. Cano Petroleum, Inc., W.O. Energy of
Nevada, Inc., W. O. Operating Company, Ltd, and WO Energy, Inc. (“Hutchinson”).

 

On
May 1, 2006, the following lawsuit was filed in the 31st Judicial District
Court of Roberts County, Texas, Case No. 1923, Chisum Family
Partnership, Ltd. v. Cano, W.O. Energy of Nevada, Inc., W. O.
Operating Company, Ltd, and WO Energy, Inc. (“Chisum”).

 

On
July 3, 2006, the following lawsuit was filed in the 31st
Judicial District Court of Roberts County, Texas, Case No. 1928, Rebecca
Lee Martinez, et al v. Cano Petroleum, Inc., W.O. Energy of
Nevada, Inc., W. O. Operating Company, Ltd., and WO Energy, Inc. (“Martinez”).

 

On
August 9, 2006, the following lawsuit was filed in the 233rd Judicial
District Court of Gray County, Texas, Yolanda Villareal, Individually and on
behalf of the Estate of Gerardo Villareal v. Cano Petroleum, Inc., W.O.
Energy of Nevada, Inc., W. O. Operating Company, Ltd., and WO Energy,
Inc. (“Villareal”). Relatives of Roberto Chavira have intervened in the
case alleging similar claims regarding the death of Roberto Chavira.

 

Schedules-8

 

 

On
March 14, 2007, the following lawsuit was filed in 100th Judicial District
Court in Carson County, Texas; Cause No. 9994, Southwestern Public Service
Company d/b/a Xcel Energy v. Cano Petroleum, Inc., W.O. Energy of
Nevada, Inc., W. O. Operating Company, Ltd, and WO Energy, Inc.
(“SPS”).

 

On
May 2, 2007, the following lawsuit was filed in the 84th
Judicial District Court of Hutchinson County, Texas, Case No. 37,619, Gary
and Genia Burgess, et al. v. Cano Petroleum, Inc., W.O. Energy of
Nevada, Inc., W.O. Operating, Ltd. and WO Energy, Inc. (“Burgess”)

 

On
September 25, 2007, the Texas Judicial Panel on Multidistrict
Litigation granted Cano Petroleum, Inc., W.O. Energy of
Nevada, Inc., W. O. Operating Company, Ltd, and WO Energy, Inc.’s
Motion to Transfer Related Cases to Pretrial Court pursuant to Texas Rule of
Judicial Administration 13.  The Panel
transferred to a single pretrial court for consideration of pretrial matters of
all pending cases (Adcock, Chisum, Hutchison, Villareal,
Martinez, SPS d/b/a Xcel Energy, Burgess, identified
above) that assert claims against the Company and its subsidiaries related to
wildfires beginning on March 12, 2006.  The Panel transferred all pending
cases to the Honorable Paul Davis, retired judge of the 200th District
Court of Travis County, Texas.  On October 19, 2007, the Court entered a
Case Management Order settling deadlines for completion of discovery in January
and February of 2008 and a hearing date for summary judgment motions on April
14, 2008.

 

On
March 27, 2007, the following lawsuit was filed in the 270th
Judicial District Court of Harris County, Texas, Case No. 2007-18421,
Challenger Minerals Inc. v. Stephen Jeffrey Johnson, Cano Petroleum, Inc.,
et al. (“Challenger”).  On October
25, 2007 settlement was agreed to between the parties.  Said settlement agreement is currently in the
process of being finalized.

 

 

 

Schedules-9

 

Schedule
3(w)

Title

 

 

Credit
Agreement with Union Bank of California dated November 29, 2005, as amended and
financing statements associated with the Credit Agreement as set forth in the
SEC Documents.

 

 

 

 

 

 

 

 

Schedules-10

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