Document:

highpoint8kex10a_282008.htm

     

    
      

      

    

     

    Exhibit 10.A

    
 

    MERGER AND
EXCHANGE AGREEMENT

     

    THIS MERGER AND EXCHANGE AGREEMENT, made and
entered into on February 6, 2008, by and among Turbine Truck Engines Inc.,
(“TTEG”), a Delaware corporation, High Point Acquisition, Inc. ("Acquisition"),
a Nevada corporation to be formed as a wholly owned subsidiary of TTEG, and High
Point Transport, Inc. ("HPTI"), a Florida corporation.

     

    W I T N E S S E T H
:

     

    WHEREAS, TTEG’s common stock is publicly traded
and its stock price is quoted on the OTC Bulletin Board; and

     

    WHEREAS, TTEG is subject to the reporting
requirements of the Securities Exchange Act of 1934, by virtue of Section 15(d)
of the Exchange Act; and

     

    WHEREAS, HPTI’s common stock is not publicly
traded, nor is its stock price quoted in any quotation medium; and

     

    WHEREAS, HTPI is subject to the reporting
requirements of the Securities Exchange Act of 1934, under Section 13 of the
Exchange Act as a result of its registration on Form 10-SB under Section 12(g)
of the Exchange Act.

     

    WHEREAS, it may be desirable for TTEG to change
its state of domicile from Delaware to Nevada in connection with a proposed
reduction in the number of its issued and outstanding shares; and

     

    WHEREAS, TTEG and HPTI mutually desire that
HPTI merge into Acquisition with the result that HPTI will become a wholly owned
subsidiary of TTEG; and

     

    WHEREAS, TTEG and HPTI respectively believe
that this transaction, and the subsequent transactions described below, will
benefit each of them in achieving their respective funding and operational
goals; and

     

    WHEREAS, TTEG and HPTI entered into a Merger
and Exchange Agreement dated February 4, 2008 which they mutually desire to
replace and supersede with this Agreement;

     

    NOW, THEREFORE, in consideration of the
premises herein before set forth, in reliance hereon and the mutual promises and
respective representations and warranties of the parties, one to another made
herein, and the reliance of each party upon the other(s) based hereon and other
good and valuable consideration, the receipt and sufficiency of which the each
party acknowledges, the parties agree, for purposes of consummating the
transactions contemplated herein, as follows:

     

    ARTICLE
I

    PRELIMINARY
MATTERS

     

    Section 1.01.  Recitals.  The
parties acknowledge the recitals herein above set forth in the preamble are
correct, are, by this reference, incorporated herein and are made a part of this
Agreement.

     

    Section 1.02.  Exhibits and
Schedules.  Exhibits (which are documents to be executed and
delivered at the Closing by the party identified therein or in the provision
r

     

    

    
      
        
           

        

        
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    quiring its
delivery) and Schedules (which are attachments setting forth information about a
party identified therein or in the provision requiring its attachment) referred
to herein and annexed hereto are, by this reference, incorporated herein and
made a part of this Agreement, as if set forth fully herein.

     

    Section 1.03.  Use of words and
phrases.  Natural persons may be identified by last name, with
such additional descriptors as may be desirable.  The words "herein,"
"hereby," "hereunder," "hereof," "herein before," "hereinafter" and any other
equivalent words refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision hereof.  The words, terms and
phrases defined herein and any pronoun used herein shall include the singular,
plural and all genders.  The word "and" shall be construed as a
coordinating conjunction unless the context clearly indicates that it should be
construed as a copulative conjunction.

     

    Section 1.04.  Accounting
terms.  All accounting terms not otherwise defined herein shall
have the meanings assigned to them under generally accepted accounting
principles unless specifically referenced to regulatory accounting
principles.

     

    Section 1.05.  Calculation of time lapse or
passage; Action required on holidays.  When a provision of this
Agreement requires or provides for the calculation of the lapse or passage of a
time period, such period shall be calculated by treating the event which starts
the lapse or passage as zero; provided, that this provision shall not apply to
any provision which specifies a certain day for action or payment, e.g. the
first day of each calendar month.  Unless otherwise provided, the term
"month" shall mean a period of thirty days and the term "year" shall mean a
period of 360 days, except that the terms "calendar month" and "calendar year"
shall mean the actual calendar period indicated.  If any day on which
action is required to be taken or payment is required to be made under this
Agreement is not a Business Day (Business Day being a day on which national
banks are open for business where the actor or payor is located), then such
action or payment shall be taken or made on the next succeeding Business
Day.

     

    Section 1.06.  Use of titles, headings and
captions.  The titles, headings and captions of articles,
sections, paragraphs and other subdivisions contained herein are for the purpose
of convenience only and are not intended to define or limit the contents of said
articles, sections, paragraphs and other subdivisions.

     

    ARTICLE
II

    TERMS OF THE
TRANSACTIONS

     

    Section 2.01.  Merger of HPTI into
Acquisition.  In accordance with the terms of this Agreement,
on the Closing Date, as defined hereinafter, (i) HPTI will merge into
Acquisition and disappear (“1st
Merger”); (ii) Acquisition will be the corporation surviving such
merger.  Notwithstanding the changes of corporate names required by
this Agreement, the parties will be identified throughout this Agreement by
their original names to avoid confusion.  Upon completion of the
1st
Merger, the corporate structure will be: (i) TTEG will have one wholly owned
subsidiary:  Acquisition, (ii) Acquisition will have one wholly owned
subsidiary: Cannon Freight Systems, Inc., a Michigan corporation, and (iii)
Cannon Freight Systems will have one wholly owned subsidiary: Cannon Global
Logistics, LLC, a Michigan limited liability company.

     

    

    
      
        
           

        

        
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    Section 2.02.  Exchange of
stock.  (a) In the 1st Merger,
HPTI’s stockholders will exchange all of their shares of HPTI’s issued and
outstanding common stock for 15 million shares of TTEG’s common stock and HPTI’s
common stock will be cancelled and cease.  Following the 1st Merger,
the original stockholders of TTEG will own 90.91 percent of TTEG  and
the original stockholders of HPTI will own 90.91 percent of TTEG, with a total
of 16.5 million shares issued and outstanding.  (b) TTEG will be
automatically obligated for and assume all of HPTI’s outstanding common stock
purchase warrants, options and convertible securities, which shall be adjusted
as a result of the transactions contemplated by this Agreement by multiplying
the number of shares for which they may be exercised or into which they may be
converted by 1.97668 based on 7.6 million shares of HPTI’s outstanding at the
date of this Agreement.

     

    Section 2.03.  Directors and executive
officers.  At the Closing, the directors and executive officers
of TTEG, excepting Michael Rouse, shall resign without liability to TTEG and
shall be replaced by the directors and executive officers of HPTI, whose
election shall be confirmed by written action of HPTI’s original stockholders;
provided, that Turbine Truck NV (as provided in Section 3.10) may employ so many
of TTEG’s resigning executive officers as it may determine are necessary and
desirable to continuation of Turbine Truck NV’s operations and Turbine Truck NV
shall be exclusively obligated for performance of TTEG’s obligations under
employment agreements with TTEG’s resigning executive officers.

     

    Section 2.04.  Federal income tax
treatment.  It is the intention of the parties that (a) the
1st
Merger and exchange of stock will be treated as a tax free exchange under
Section 354 of the Internal Revenue Code and (b) the 2nd Merger
will be treated as a tax free capitalization under Section 352 of the Internal
Revenue Code.  The parties do not intend to obtain a tax opinion from
counsel or seek a letter ruling or other advice from the Internal Revenue
Service regarding the federal income tax consequences of the
transactions.

     

    Section 2.05.  Federal security law
matters.  The parties elect to adopt the reporting obligations
of TTEG under Section 15(d) of the Exchange Act, using TTEG’s EDGAR access codes
and registration number 333-109118.  Following filing of a current
report on Form 8-K by HTPI reporting Closing of the transactions contemplated by
this Agreement, HPTI shall file a Form 15 terminating its registration and
reporting obligations under registration number 000-52756.  The shares
of TTEG’s common stock received by HPTI’s stockholders in the 1st Merger
will be “restricted securities” as defined in Rule 144 and subject to Rule 145
under the Securities Act of 1933, with a holding period for purposes of Rule 144
beginning on the date of the 1st
Merger.

     

    Section 2.06.  Press
releases.  No party will issue a press release regarding the
subject matter of this Agreement and the transactions contemplated hereby,
either before or after Closing, without the prior approval thereof by the other
party and its counsel; provided, that either or both of TTEG and HPTI may file a
report on Form 8-K with the Securities and Exchange Commission not later than
the date their respective securities counsel shall determine subject
nevertheless to five-day prior notification to the other party of intent to
file.

     

    

    
      
        
           

        

        
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    Section 2.07.  Transaction
costs.  Each party shall pay all costs and expenses which it
incurs in connection with this Agreement and the transactions contemplated
hereby.

     

    ARTICLE
III

    CLOSING OF THE
TRANSACTION

     

    Section 3.01.  Location, date and time of
the Closing.  The Closing of the transaction contemplated by
this Agreement shall take place on February 15, 2008, or as soon thereafter as
practicable, ("Closing Date"), but in no event later than February 29,
2008.  The Closing shall take place at a time and at a location agreed
to by the parties, and may include the exchange from different locations of
executed signature pages by telephone facsimile and/or e-mail
attachment.  The acts and deliveries which occur on the Closing Date
for the purpose of consummating the transactions contemplated by this Agreement
and the event itself are referred to herein as the "Closing".

     

    Section 3.02.  HPTI's obligations at the
Closing.  At the Closing, HPTI will deliver to
Acquisition:

     

    (a)  Officers' and Secretary's and
Certificates of HPTI in the form set forth in Exhibits "A" and "B",
respectively;

     

    (b)  Certificates representing all of
the issued and outstanding shares of HPTI’s common stock endorsed by the record
holders thereof for surrender and cancellation; and

     

    (c)  Articles of Merger in compliance
with Florida Law.

     

    Section 3.03.  TTEG's obligations at the
Closing.  At the Closing, Acquisition will
deliver:

     

    (a)  Officers' and Secretary's
Certificates of the TTEG in the form set forth in Exhibits "A" and "B",
respectively.

     

    (b)  Certificates representing 15
million shares of TTEG’s common stock in such numbers and such denominations and
registered in the names of such persons as HPTI shall direct in writing to be
received not less than three Business Days prior to Closing.

     

    Section 3.04.  Acquisition's obligations at
the Closing.  At the Closing, Acquisition will
deliver:

     

    (a)  Officers' and Secretary's
Certificates of Acquisition in the form set forth in Exhibits "A" and "B",
respectively.

     

    (b)  Articles of Merger in compliance
with Nevada law.

     

    Section 3.05.  Closing Memorandum and
receipts.  As evidence that all parties deem the Closing to
have been completed and the transactions contemplated by this Agreement to have
been consummated, the parties jointly will execute and deliver a Closing
Memorandum, in the form of Exhibit “C”, acknowledging such completion and
consummation.

     

    

    
      
        
           

        

        
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    Section 3.06.  Waiver of
conditions.  Notwithstanding Section 11.03, any condition to
the Closing which is to the benefit of any party and which is not satisfied
prior to or at the Closing will be deemed to be waived by the benefited party or
otherwise satisfied and waived by virtue of that party executing the Closing
Memorandum, except to the extent any such unsatisfied or unperformed condition
is expressly preserved by listing it in the Closing Memorandum for satisfaction
or performance after the Closing.

     

    Section 3.07.  Further
assurances.  At any time and from time to time after the
Closing, at the reasonable request of any party and without further
consideration, any other party(ies) shall execute and deliver such other
instruments and documents as such requesting party may deem reasonably desirable
or necessary to complete and confirm the transactions contemplated by this
Agreement.

     

    Section 3.08.  Conditions precedent to
TTEG and
Acquisition's
obligations.  All obligations of TTEG and Acquisition hereunder
are subject, at the option of TTEG, to the fulfillment of each of the following
conditions at or prior to the Closing, and HPTI shall exert its best efforts to
cause each such condition to be so fulfilled:

     

    (a)  All representations and
warranties of HPTI contained herein or in any document delivered pursuant hereto
shall be true and correct in all material respects when made and shall be deemed
to have been made again and given at and as of the date of the Closing of the
transaction contemplated by this Agreement, and shall then be true and correct
in all material respects, except for changes in the ordinary course of business
after the date hereof in conformity with the representations, covenants and
agreements contained herein.

     

    (b)  All covenants, agreements and
obligations required by the terms of this Agreement to be performed by HPTI at
or before the Closing shall have been duly and properly performed in all
material respects to TTEG's reasonable satisfaction.

     

    (c)  Since the date of this Agreement
there shall not have occurred any material adverse change in the condition or
prospects (financial or otherwise) of HPTI and none of the assets or business of
HPTI shall have suffered or incurred a material damage, destruction or loss not
fully covered by insurance and which has a materially adverse affect on its
business and operations.  As used in this paragraph (c), HPTI includes
HPTI and its subsidiaries on a consolidated basis.

     

    (d)  All documents required to be
delivered to TTEG at or prior to the Closing shall have been so
delivered.

     

    (e)  The transaction contemplated by
this Agreement shall have been approved by not less than a majority of HPTI's
issued and outstanding shares of common stock, or such greater number of shares
as required by its articles of incorporation, as amended, or its bylaws as in
effect.

     

    (f)  TTEG shall have received a
certificate of good standing for HPTI and each of its direct and indirect
subsidiaries issued by the secretary of state (Department of Labor, in the case
of Michigan) of its state of incorporation and of each state in which it is
qualified or required to be qualified to do business as a foreign corporation
or, in the alternative, the printed page(s) of an Internet search at an official
state government web site as

     

    

    
      
        
           

        

        
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    of
a recent date demonstrating unofficially that the entity is active, in good
standing or otherwise current in filing annual franchise reports.

     

    Section 3.09.  Conditions precedent to the
HPTI's obligations.  All obligations of HPTI at the Closing are
subject, at the option of HPTI, to the fulfillment of each of the following
conditions at or prior to the Closing, and TTEG and Acquisition shall exert
their respective best efforts to cause each such condition to be so
fulfilled.

     

    (a)  TTEG shall (a) redomicile to
Nevada from Delaware and file articles of dissolution in Delaware, provided that
in such redomiciliation TTEG may elect to change its name to High Point
Transport, Inc., which will eliminate the need for a subsequent name change
described below, and (b) have completed a share consolidation of its issued and
outstanding shares of common stock in a ration of 1:11.3486, with fractional
shares rounded up to the next whole share ; provided that (i) the total number
of shares of common stock TTEG is authorized to issue shall be and remain
99,000,000 and (ii) FINRA or the NASDAQ Stock Market Corporate Operations Data
Department, as required, shall have been
appropriately notified

     

    (b)  All representations and
warranties of TTEG and of Acquisition contained herein or in any document
delivered pursuant hereto shall be true and correct in all material respects
when made and as of the Closing.

     

    (c)  All obligations required by the
terms of this Agreement to be performed by TTEG and Acquisition at or before the
Closing shall have been duly and properly performed in all material
respects.

     

    (d)  Since the date of this Agreement
there shall not have occurred any material adverse change in the condition or
prospects (financial or otherwise) of TTEG and none of the assets or business of
TTEG shall have suffered or incurred a material damage, destruction or loss not
fully covered by insurance and which has a materially adverse affect on its
business and operations.  Acquisition shall not have any assets or
liabilities, nor shall it have conducted any business.

     

    (e)  All documents required to be
delivered to HPTI at or prior to the Closing shall have been so
delivered.

     

    (f)  The transactions contemplated by
this Agreement to the extent requiring stockholder approval shall have been
approved by not less than a majority of TTEG's issued and outstanding shares of
common stock, or such greater number of shares as required by its articles of
incorporation, as amended, or its bylaws as in effect.

     

    (g)  HPTI shall have received a
certificate of good standing for TTEG and for Acquisition issued by the
secretary of state of their respective states of incorporation and of each state
in which each is qualified or required to be qualified to do business as a
foreign corporation or, in the alternative, the printed page(s) of an Internet
search at an official state government web site demonstrating unofficially that
as of a recent date the entity is active, in good standing or otherwise current
in filing annual franchise reports.

     

    (h)  HPTI shall have compensated
Cresta Capital Strategies, LLC for its services in connection with the 1st Merger
by the issue of common stock purchase warrants exercisable for the purchase of
760,002 shares of its common stock (subject to adjustment as a result of the
1st
Merger by the factor of 1.97368, the fractional share rounded down

     

    

    
      
        
           

        

        
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    to
the next whole share), such warrants, as adjusted for the 1st Merger,
exercisable at a price per share equal to one-half of the closing bid price of
TTEG’s common stock on the date its share consolidation is effective and subject
to forfeiture in the event the Closing is not completed.

     

    Section 3.10.  Transactions to be completed
post Closing.  Following the Closing, TTEG and Acquisition will
enter into the following transactions:

     

    (a)  As
soon as practicable following the Closing, Acquisition will merge (“2nd A
Merger“) into TTEG and disappear, and TTEG will change its name to High Point
Transport, Inc., unless it has adopted this name in its redomiciliation to
Nevada.

     

    (b) Between the
1st
Merger and the 2nd Merger,
TTEG will transfer all of TTEG’s previously existing assets and operations into
a Nevada corporation to be formed with the name “Turbine Truck Engines NV, Inc.”
(“Turbine Truck NV”) and in consideration for the transfer TTEG will receive all
of the issued and outstanding shares of the Turbine Truck NV’s common stock,
with the result that Turbine Truck NV will be a wholly owned subsidiary of TTEG.
Upon completion of the transfer described in this clause (b) and the 2nd Merger,
the corporate structure will be: (i) TTEG will have two wholly owned
subsidiaries: Cannon Freight Systems, Inc. and Turbine Truck NV and (ii) Cannon
Freight Systems will have one wholly owned subsidiary: Cannon Global Logistics,
LLC.

     

    (c)  Following
the transfer described in clause (b) of this Section, TTEG will use its best
efforts to provide or arrange funding to Turbine Truck NV pursuant to a budget
covering a period of thirty-six months attached hereto as Exhibit
“D”.  It is expected that the 36-month budget will require an
aggregate amount of approximately $1,000,000 over the first twelve months for
working capital in furtherance of its business development plans.  In
the event TTEG is unable to provide the funding during the first twelve months
as provided in the budget, then TTEG at its expense will cause Turbine Truck NV
to file a registration statement under the Securities Act of 1933 for the
purpose of TTEG’s distribution of a dividend in kind to its stockholders
consisting of Turbine Truck NV’s shares owned by TTEG, less the 9.99 percent of
those shares to be retained by TTEG; provided, that the 9.99 percent shall be
reduced by a percentage determined by dividing the difference between the amount
of funding actually provided in such twelve month period and the funding
required under the budget in such twelve month period divided by the funding
required under the budget in such twelve-month period.

     

    ARTICLE
IV

    REPRESENTATIONS AND
WARRANTIES OF THE PARTIES

     

    Section 4.01.  HPTI's representations and
warranties.  HPTI, for itself and on a consolidated basis with
its subsidiaries, represents and warrants to TTEG and Acquisition
that:

     

    (a)  Each of HPTI and its direct and
indirect subsidiaries is duly incorporated and existing corporation or duly
organized and existing limited liability company in good standing under the laws
of its state of incorporation or organization and HPTI has full corporate power
to execute, deliver and perform this Agreement.

     

    (b) This Agreement has been duly and validly
authorized, executed and delivered by HPTI and constitutes the legal, valid and
binding obligation of HPTI enforceable

     

    

    
      
        
           

        

        
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    against it, in
accordance with its terms, subject, as to enforceability, to bankruptcy,
insolvency, reorganization and other laws of, relating to or affecting
stockholders and creditors rights generally and to general equitable
principles.

     

    (c) The execution of this Agreement and
consummation of the transactions contemplated hereby does not conflict with and
will not result in any adverse consequences to or breach of any agreement,
mortgage, instrument, judgment, decree, law or governmental regulation, license,
permit or authorization by HPTI or in the loss, forfeiture or waiver of any
rights, license, authorization or franchise owned by HPTI, from which HPTI
benefits or which is desirable in the conduct of HPTI’s business.

     

    (d)  Except for such actions as may
have been taken, no further action by or before any governmental body or
authority of the United States of America or any state or subdivision thereof or
any regulatory body to which HPTI is subject is required in connection with the
execution and delivery of this Agreement by HPTI and the consummation of the
transactions contemplated hereby.

     

     (e)  The information HPTI has
delivered to TTEG relating to HPTI was, to the knowledge of HPTI, on the date
reflected in each such item of information accurate in all material respects
and, to the knowledge of HPTI, such information at the date hereof taken as a
whole provides, to the knowledge of HPTI, full and fair disclosure of all
material information relating to HPTI and does not, to the knowledge of
HPTI omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.

     

    (f)  HPTI has conducted its business
in the ordinary course for the last three years or since inception, whichever is
less, except that it acquired Cannon Freight Systems as a wholly owned
subsidiary on October 25, 2007.

     

    (g) Neither HPTI nor any employee, to HPTI
knowledge, has since inception given or agreed to give any gift or similar
benefit valued at more than $20 annually to any customer, supplier, governmental
employee or other person who is or may be or have been in a position to help or
hinder HPTI's business which might subject HPTI to damage or penalty in civil,
criminal or governmental litigation or proceedings.

     

    (h)  HPTI's financial statements
contained in its registration and reports filed with the Securities and Exchange
Commission have been prepared in accordance with generally accepted accounting
principles consistently applied and maintained throughout the periods indicated,
fairly present the financial condition of HPTI in all material respects at the
dates and the results of operations for the periods indicated, contain all
normally recurring adjustments and do not omit to disclose any contingent,
undisclosed or hidden liabilities.  HPTI's financial records are
maintained in accordance with good business practice.

     

    (i) HPTI
has good, marketable and insurable title to all of the properties and assets,
including intangible assets, if any, which it owns or uses in HPTI’s business or
purports to own, including, without limitation, those reflected in its books and
records and in the balance sheet, both tangible and intangible, (excluding
inventory sold after the most recent balance sheet date in the ordinary course
of business), excepting only those properties and assets subject to operating
leases disclosed in notes to HPTI’s f

     

    

    
      
        
           

        

        
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    nancial
statements.  All of HPTI’s properties and assets are subject to
multiple perfected and unperfected security interests; but, otherwise are not
subject to any encumbrance, restriction, lease, license, easement, liability or
adverse claim of any nature whatsoever, direct or indirect, whether accrued,
absolute, contingent or otherwise, except as expressly set forth in the notes to
HPTI's financial statements as securing specific liabilities or subject to
specific capital leases and have arisen only in the ordinary course of
business.  Except as noted on Schedule "A", all of the properties and
assets owned, leased or used by HPTI are in good operating condition and repair,
are suitable for the purposes used, are adequate and sufficient for all current
operations and are directly related to HPTI's business.

     

    (j)  All of the material contracts,
agreements, leases, licenses and commitments of HPTI (other than those which
have been fully performed), are valid and binding, enforceable in accordance
with their respective terms, in full force and effect and, except as noted in
Schedule "C", there is not thereunder with respect to any party thereto any
existing default or event, which after the giving of notice or lapse of time or
both, would constitute a default or result in a right to accelerate or loss of
rights and none of such contracts, agreements, leases, licenses and commitments
is, either when considered singly or in the aggregate with others, unduly
burdensome, onerous or materially adverse to HPTI's consolidated business,
properties, assets, earnings or prospects or either before or after the Closing,
to result in any material loss or liability.

     

    (k)  There is no claim, legal action,
suit, arbitration, governmental investigation, or other legal or administrative
proceeding, nor any order, decree, judgment or judgment in progress, pending or
in effect or to HPTI's knowledge threatened, against or relating to HPTI, other
than suits and judgments for sums not exceeding $25,000 or otherwise fully
insured, its directors, officers or employees with respect to HPTI or its
business or for which HPTI or its subsidiaries may have an indemnity obligation,
it properties, assets or business or the transaction contemplated by this
Agreement and HPTI does not know or have any reason to be aware of any basis for
the same, including any basis for a claim of sexual harassment or racial or age
discrimination, except as set forth in Schedule "D".

     

    (l)  All taxes, including without
limitation, income, property, special assessments, sales, use, franchise,
intangibles, employees’ income withholding and social security taxes, including
employer's contribution, other than those for which a return or deposit is not
yet due and have been, which are due and payable, and all interest and penalties
thereon, unless disputed in good faith in proper proceedings and reserved for or
set aside, have been paid in full and all tax returns required to be filed in
connection therewith have been accurately prepared and timely filed and all
deposits required by law to be made by HPTI with respect to employees’
withholding and social security taxes have been made.  HPTI is not and
has no reason to believe that it will be the subject of an audit by any taxing
authority.  There is not now in force any extension of time with
respect to the date when tax return was or is due to be filed, or any waiver or
agreement by HPTI for the extension of time for the assessment of any tax and
HPTI is not a “consenting corporation” within the meaning of Section 341(f)(1)
of the Tax Code.

     

    

    
      
        
           

        

        
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    (m)  HPTI does not have any employee
benefit, pension or profit sharing plans subject to ERISA and no such plans to
which HTPI is obligated or required to make contributions.

     

    (n)  None of HPTI's employees are
represented by a collective bargaining agent or subject to a collective
bargaining agreement and HPTI considers its relations with its employees as a
whole to be good.  HPTI has disclosed to TTEG all employee salary,
compensation and benefit agreements and no employee has a written employment
agreement.

     

    (o)  No person has guaranteed any
obligation of HPTI, and HPTI has not guaranteed the obligation of any other
person, except guarantees of loans to HPTI made by Agile Opportunity Fund, LLC,
Textron Financial Corporation and Land Rover Capital Group.

     

    (p)  HPTI and its management have no
reason to believe or expect and do not believe or expect that any event or
events will occur which will result its business producing results of operations
which are materially different from HPTI’s recent operations, except for a
reduction in deliveries of freight to the automotive industry which is expected
to be temporary.

     

    Section 4.02.  TTEG and Acquisition's
representations and warranties.  TTEG, for itself and on a
consolidated basis with Acquisition, represents and warrants to HPTI
that:

     

    (a)  Each of TTEG and Acquisition is
duly incorporated and existing corporation or duly organized and existing
limited liability company in good standing under the laws of its state of
incorporation or organization and HPTI has full corporate power to execute,
deliver and perform this Agreement.  Acquisition is TTEG’s only
subsidiary.

     

    (b) This Agreement has been duly and validly
authorized, executed and delivered by HPTI and constitutes the legal, valid and
binding obligation of TTEG and Acquisition enforceable against it, in accordance
with its terms, subject, as to enforceability, to bankruptcy, insolvency,
reorganization and other laws of, relating to or affecting stockholders and
creditors rights generally and to general equitable principles.

     

    (c)  The execution of this Agreement
and consummation of the transactions contemplated hereby does not conflict with
and will not result in any adverse consequences to or breach of any agreement,
mortgage, instrument, judgment, decree, law or governmental regulation, license,
permit or authorization by TTEG and Acquisition or in the loss, forfeiture or
waiver of any rights, license, authorization or franchise owned by HPTI, from
which HPTI benefits or which is desirable in the conduct of TTEG and Acquisition
business.

     

    (d)  Except for such actions as may
have been taken, no further action by or before any governmental body or
authority of the United States of America or any state or subdivision thereof or
any regulatory body to which TTEG and Acquisition are subject is required in
connection with the execution and delivery of this Agreement by HPTI and the
consummation of the transactions contemplated hereby.

     

     (e)  The information TTEG and
Acquisition have delivered to HPTI relating to TTEG and Acquisition was, to the
knowledge of HPTI, on the date reflected in each

     

    

    
      
        
           

        

        
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    such item of
information accurate in all material respects and, to the knowledge of HPTI,
such information at the date hereof taken as a whole provides, to the knowledge
of HPTI, full and fair disclosure of all material information relating to TTEG
and Acquisition and does not, to the knowledge of HPTI omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

     

    (f)  TTEG has conducted its business
in the ordinary course for the last three years or since inception, whichever is
less; and, Acquisition has never conducted any business or incurred any
obligations.

     

    (g) Neither TTEG or Acquisition nor any
employee, to TTEG’s knowledge, has since inception given or agreed to give any
gift or similar benefit valued at more than $20 annually to any customer,
supplier, governmental employee or other person who is or may be or have been in
a position to help or hinder TTEG and Acquisition’s business which might subject
TTEG or Acquisition to damage or penalty in civil, criminal or governmental
litigation or proceedings.

     

    (h)  TTEG’s financial statements
contained in its registration and reports filed with the Securities and Exchange
Commission have been prepared in accordance with generally accepted accounting
principles consistently applied and maintained throughout the periods indicated,
fairly present the financial condition of TTEG in all material respects at the
dates and the results of operations for the periods indicated, contain all
normally recurring adjustments and do not omit to disclose any contingent,
undisclosed or hidden liabilities.  TTEG’s financial records are
maintained in accordance with good business practice.  Acquisition has
not prepared any financial statements and does not maintain any financial
records.

     

    (i) TTEG
has good, marketable and insurable title to all of the properties and assets,
including intangible assets, if any, which it owns or uses in TTEG’s business or
purports to own, including, without limitation, those reflected in its books and
records and in the balance sheet, both tangible and intangible, (excluding
inventory sold after the most recent balance sheet date in the ordinary course
of business), excepting only those properties and assets subject to operating
leases disclosed in notes to TTEG’s financial statements.  All of
TTEG’s properties and assets are subject to multiple perfected and unperfected
security interests; but, otherwise are not subject to any encumbrance,
restriction, lease, license, easement, liability or adverse claim of any nature
whatsoever, direct or indirect, whether accrued, absolute, contingent or
otherwise, except as expressly set forth in the notes to TTEG's financial
statements as securing specific liabilities or subject to specific capital
leases and have arisen only in the ordinary course of
business.  Except as noted on Schedule "A", all of the properties and
assets owned, leased or used by TTEG are in good operating condition and repair,
are suitable for the purposes used, are adequate and sufficient for all current
operations and are directly related to TTEG’s business.

     

    (j)  All of the material contracts,
agreements, leases, licenses and commitments of TTEG (other than those which
have been fully performed), are valid and binding, enforceable in accordance
with their respective terms, in full force and effect and, except as noted in
Schedule "C", there is not thereunder with respect to any party thereto
any

     

    

    
      
        
           

        

        
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    existing default or
event, which after the giving of notice or lapse of time or both, would
constitute a default or result in a right to accelerate or loss of rights and
none of such contracts, agreements, leases, licenses and commitments is, either
when considered singly or in the aggregate with others, unduly burdensome,
onerous or materially adverse to TTEG's business, properties, assets, earnings
or prospects or either before or after the Closing, to result in any material
loss or liability.

     

    (k)  There is no claim, legal action,
suit, arbitration, governmental investigation, or other legal or administrative
proceeding, nor any order, decree, judgment or judgment in progress, pending or
in effect or to TTEG’s knowledge threatened, against or relating to TTEG, its
directors, officers or employees with respect to TTEG or its business or for
which HPTI or its subsidiaries may have an indemnity obligation, it properties,
assets or business or the transaction contemplated by this Agreement and TTEG
does not know or have any reason to be aware of any basis for the same,
including any basis for a claim of sexual harassment or racial or age
discrimination, except as set forth in Schedule "D".

     

    (l)  All taxes, including without
limitation, income, property, special assessments, sales, use, franchise,
intangibles, employees’ income withholding and social security taxes, including
employer's contribution, other than those for which a return or deposit is not
yet due and have been, which are due and payable, and all interest and penalties
thereon, unless disputed in good faith in proper proceedings and reserved for or
set aside, have been paid in full and all tax returns required to be filed in
connection therewith have been accurately prepared and timely filed and all
deposits required by law to be made by TTEG with respect to employees’
withholding and social security taxes have been made.  TTEG is not and
has no reason to believe that it will be the subject of an audit by any taxing
authority.  There is not now in force any extension of time with
respect to the date when tax return was or is due to be filed, or any waiver or
agreement by TTEG for the extension of time for the assessment of any tax and
TTEG is not a “consenting corporation” within the meaning of Section 341(f)(1)
of the Tax Code.

     

    (m)  TTEG does not have any employee
benefit, pension or profit sharing plans subject to ERISA and no such plans to
which TTEG is obligated or required to make contributions.

     

    (n)  None of TTEG's employees are
represented by a collective bargaining agent or subject to a collective
bargaining agreement and TTEG considers its relations with its employees as a
whole to be good.  TTEG has disclosed to TTEG all employee salary,
compensation and benefit agreements and no employee has a written employment
agreement.

     

    (o)  No person has guaranteed any
obligation of TTEG, and TTEG has not guaranteed the obligation of any other
person.

     

    (p)  TTEG and its management have no
reason to believe or expect and do not believe or expect that any event or
events will occur which will result its business producing results of operations
which are materially different from TTEG’s recent operations.

     

    

    
      
        
           

        

        
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    Section 4.03.  Nature and survival of
representation and warranties; Remedies.  All statements of
fact contained in this Agreement, any certificate delivered pursuant to this
Agreement, or any letter, document or other instrument delivered by or on behalf
of HPTI or of TTEG and Acquisition, and their respective officers, pursuant to
the terms of this Agreement shall be deemed representations and warranties made
by HPTI or by TTEG and Acquisition, respectively, as the case may be, to each
other under this Agreement.  For purposes of this Section 4.03 and
Section 10.01 only, any party or other person seeking to enforce, or
claiming the benefit of, any representation and warranty under this Agreement is
called a Claimant, and any party or other person against whom a right is claimed
is called a Defendant.  All representations and warranties of the
parties shall survive the Closing and all inspections, examinations or audits on
behalf of the parties; provided, however, that all representations and
warranties shall terminate and expire, and be without further force and effect
whatever from and after the one year from the date hereof, and none of TTEG,
Acquisition or HPTI shall have any liability whatsoever on account of any
inaccurate representation or warranty or for any breach of warranty, unless a
Claimant shall, on or prior to the expiration of such one year period, serve
written notice on a Defendant, with a copy to the Defendant's counsel, setting
forth in reasonable detail the breach and any direct, incidental or
consequential damages (including amounts) the Claimant may have suffered as a
result of such breach.

     

    ARTICLE
V

    COVENANTS OF THE
PARTIES

     

    Section 5.01.  Conduct of business prior to
Closing.

     

    (a) From the date hereof to the Closing, HPTI
on a consolidated basis and TTEG, respectively, will each conduct its business
and affairs only in the ordinary course and consistent with its prior practice
and shall maintain, keep and preserve its assets and properties in good
condition and repair and maintain insurance thereon in accordance with present
practices, it will use its best efforts (i) to preserve its business and
organization intact, (ii) to preserve the goodwill of suppliers, customers,
distributors, landlords and others having business relations with it, and (iii)
to cooperate and use reasonable efforts to obtain the consent of any landlord or
other party to any lease or contract where the consent of such landlord or other
party may be required by reason of the transactions contemplated
hereby.

     

    (b)  From the date hereof to the
Closing, neither HPTI nor TTEG shall (i) dispose of any material assets, (ii)
engage in any extraordinary transactions without the other party’s prior
approval, including but not limited to, directly or indirectly, soliciting,
entertaining, encouraging inquiries or proposals or entering into negotiation or
agreement with any third party for sale of assets, sale of equity securities or
merger, consolidation or combination with any company, (iii) grant any salary or
compensation increase to any employee, or (iv) make any commitment for capital
expenditures, other than as disclosed to and approved by the other
party.

     

    Section 5.02.  Notice of changes in
information.  Each party shall give the other party prompt
written notice of any change in any of the information contained in their
respective representations and warranties made in Article IV, or elsewhere in
this Agre

     

    

    
      
        
           

        

        
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    ment, or the
exhibits and schedules referred to herein or any written statements made or
given in connection herewith which occurs prior to the Closing.

     

    Section 5.03.  Notice of extraordinary
changes.  Each party shall advise the other party with respect
to any of the following outside of ordinary course of business or which are
materially adverse:  (i) the entering into and cancellation or breach
of contracts, agreements, licenses, commitments or other understandings or
arrangements to which such party is a party, including, without limitation,
purchase orders for any item of inventory and commitments for capital
expenditures or improvements, or (ii) any changes in purchasing, pricing or
selling policy, or, any changes in its sales, business or employee relations in
general.

     

    Section 5.04.  Action to preserve business
and assets.   Notwithstanding anything contained in this
Agreement to the contrary, neither party will take or fail to take any action
that, is likely to give rise to a substantial penalty or a claim for damages by
any third party against it, or is likely to result in losses, or is otherwise
likely to prejudice in any material respect or unduly interfere with the conduct
of its business and operations in the ordinary course consistent with prior
practice, or is likely to result in a breach by HPTI of any of its
representations, warranties or covenants contained in this Agreement (unless any
such breach is first waived in writing by the other party).

     

    Section 5.05.  Access to information and
documents.  Upon reasonable notice and during regular business
hours, each party will give to the other party(ies), its attorneys, accountants
and other representatives full access to its personnel (subject to reasonable
approval as to the time thereof) and all properties, documents, contracts, books
and records and will furnish copies of such documents (certified by officers, if
so requested) and with such information with respect to its business,
operations, affairs and prospects (financial and otherwise) as it may from time
to time request, and the party to whom the information is provided will not
improperly disclose the same prior to the Closing.  Each party will
afford the other party(ies) an opportunity to ask questions and receive answers
thereto in furtherance of their due diligence.  Any such furnishing of
such information or any investigation shall not affect that party's right to
rely on the other party's representations and warranties made in this Agreement
or in connection herewith or pursuant hereto.

     

    Section 5.06.  Confidential treatment of
information.  The provisions of Exhibit "D" shall be binding
upon the parties.

     

    Section 5.07.  Cooperation by the
parties.  Each party hereto shall cooperate and shall take such
further action as may be reasonably requested by any other party in order to
carry out the provisions and purposes of this Agreement.

     

    ARTICLE
VII

    FEDERAL INCOME TAX
MATTERS

     

    Section 7.01.  Responsibility for
understanding tax consequences.  Each party shall be
responsible for obtaining its or his own tax advice with respect to and
understanding the federal income tax consequences of the transactions and the
federal income tax consequences thereof contemplated by this Agreement and
waives any reliance with respect thereto on any other party.

     

    

    
      
        
           

        

        
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    ARTICLE
VIII

     

    TERMINATION PRIOR TO
CLOSING

     

    Section 8.01.  Termination for
default.  Either party may, by notice to the other party(ies)
given in the manner provided below on or at any time prior to the Closing Date,
terminate this Agreement if default shall be made by the party receiving notice
in the observance or in the due and timely performance of any of any material
covenants and agreements contained, made by or imposed upon it, in this
Agreement, if the default has not been fully cured within fifteen days after
receipt of the notice specifying the default.

     

    Section 8.02.  Termination for failure to
Close.  If the Closing does not occur on or before the date
provided in Section 3.01, any party, if that party is not then in default in the
observance or in the due or timely performance of any covenants and conditions
under this Agreement, may at any time terminate this Agreement by giving written
notice to the other parties; provided, that the parties may extend the Closing
date in writing.

     

    Section 8.03.  Termination for loss of
bargain.  Either party may, at its option, terminate this
Agreement prior to the Closing if it determines in good faith (i) in completion
of its due diligence examination of the other party, it discovers the existence
of a material, adverse variance from its due diligence examination prior to the
date of this Agreement, or (ii) the business or assets of the other party have
suffered any material damage, destruction or loss (whether or not covered by
insurance), or (iii) the transaction is prevented by order of court or
administrative action from consummating the transactions contemplated by this
Agreement, whether or not the party against whom the court order or
administrative action lies has exhausted its appeals.

     

    ARTICLE
IX

    NOTICES

     

    Section 9.01.  Procedure for giving
notices.  Any and all notices or other communications required
or permitted to be given under any of the provisions of this Agreement shall be
in writing and shall be deemed to have been duly given when personally delivered
(excluding telephone facsimile and including receipted express courier and
overnight delivery service) or mailed by first class certified U.S. mail, return
receipt requested showing name of recipient, addressed to the proper
party.

     

    Section 9.02.  Addresses for
notices. For purposes of sending notices under this Agreement, the
addresses of the parties are as follows:

     

    
      
        	
                        As to
      HPTI:

              	
                Paul A.
      Henley, President

              
	 
    	
                High Point
      Transport, Inc.

              
	 
    	
                23730 County
      Road  675

              
	 
    	
                Myakka City,
      Florida  34251

              
	 	 
	
                        Copy
      to:

              	
                Jackson L.
      Morris, Esq.

              
	      	
                3116 West
      North A Street

              
	 
    	
                Tampa,
      Florida 33609-1544

              
	 
    	 
    
	
                        As to
      TTEG:

              	
                Michael
      Rouse

              
	
                        and
      Acquisition

              	
                Turbine Truck
      Engine, Inc.

              
	 
    	
                1301
      International Speedway Boulevard

              
	 
    	
                Deland,
      Florida 32724

              
	 
    	 
    
	
                        Copy
      to:

              	
                Kimberly L.
      Graus, Esq.

              
	 
    	
                4949 E State
      Road 64 # 141

              
	 
    	
                Bradenton,
      Florida 34208-5530

              

      

    

     

     

    
      
        
        

      

      
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    Section 9.03.  Change of
address.  A party may change its address for notices by sending
a notice of such change to all other parties by the means provided in Section
9.01.

     

    ARTICLE
X

    LEGAL AND OTHER
COSTS

     

    Section 10.01.  Party entitled to
recover.  In the event that any party (the "Defaulting Party")
defaults in his or its obligation under this Agreement and, as a result thereof,
the other party (the "Non-Defaulting Party") seeks to legally enforce his or its
rights hereunder against the Defaulting Party (whether in an action at law, in
equity or in arbitration), then, in addition to all damages and other remedies
to which the Non-Defaulting Party is entitled by reason of such default, the
Defaulting Party shall promptly pay to the Non-Defaulting Party an amount equal
to all costs and expenses (including reasonable attorneys' fees and expert
witness fees) paid or incurred by the Non-Defaulting Party in connection with
such enforcement.

     

    Section 10.02.  Interest.  In
the event the Non-Defaulting Party is entitled to receive an amount of money by
reason of the Defaulting Party's default hereunder, then, in addition to such
amount of money, the Defaulting Party shall promptly pay to the Non-Defaulting
Party a sum equal to interest on such amount of money accruing at the rate of
1.5% per month during the period between the date such payment should have been
made hereunder and the date of the actual payments thereof.

     

    ARTICLE
XI

    MISCELLANEOUS

     

    Section 11.01.  Effective
date.  The effective date of this Agreement shall for all
purposes be the date set forth in first paragraph hereof notwithstanding a later
actual date of execution by any individual party.

     

    Section 11.02.  Entire
agreement.  This writing constitutes the entire agreement of
the parties with respect to the subject matter hereof, superseding all prior
agreements, understandings, representations and warranties.

     

    Section 11.03.  Waivers.  No
waiver of any provision, requirement, obligation, condition, breach or default
hereunder, or consent to any departure from the provisions hereof, shall be
considered valid unless in writing and signed by the party giving
such

     

    

    
      
        
           

        

        
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    waiver, and no such
waiver shall be deemed a waiver of any subsequent breach or default of the same
or similar nature.

     

    Section 11.04.  Amendments.  This
Agreement may not be modified, amended or terminated except by a written
agreement specifically referring to this Agreement signed by all of the parties
hereto and amendment, modification or alteration of, addition to or termination
of this Agreement or any provision of this Agreement shall not be effective
unless it is made in writing and signed by the parties.

     

    Section 11.05.  Construction.  This
Agreement has been negotiated by the parties, section by section, and no
provision hereof shall be construed more strictly against one party than against
the another party by reason of such party having drafted such
provision.  The order in which the provisions of this Agreement appear
are solely for convenience of organization; and later appearing provisions shall
not be construed to control earlier appearing provisions.

     

    Section 11.06.  Invalidity.  It
is the intent of the parties that each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable
law.  If any provision hereof shall be prohibited, invalid, illegal or
unenforceable, in any respect, under applicable law, such provision shall be
ineffective to the extent of such prohibition, invalidity or non enforceability
only, without invalidating the remainder of such provision or the remaining
provisions of this Agreement; and, there shall be substituted in place of such
prohibited, invalid, illegal or unenforceable provision a provision which nearly
as practicable carries out the intent of the parties with respect thereto and
which is not prohibited and is valid, legal and enforceable.

     

    Section 11.07.  Multiple
counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be an original and, taken together, shall be
deemed one and the same instrument.

     

    Section 11.08.  Assignment, parties and
binding effect.  This Agreement, and the duties and obligations
of any party shall not be assigned without the prior written consent of the
other party(ies).  This Agreement shall benefit solely the named
parties and no other person shall claim, directly or indirectly, benefit
hereunder, express or implied, as a third-party beneficiary, or
otherwise.  Wherever in this Agreement a party is named or referred
to, the successors (including heirs and personal representative of individual
parties) and permitted assigns of such party shall be deemed to be included, and
all agreements, promises, covenants and stipulations in this Agreement shall be
binding upon and inure to the benefit of their respective successors and
permitted assigns.

     

    Section 11.09.  Survival of representations
and warranties.  The representations and warranties made herein
shall survive the execution and delivery of this Agreement and full performance
hereunder of the obligations of the representing and warranting party, subject
to the provisions of Section 4.03.

     

    Section 11.10.  Jurisdiction and
venue.  Any action or proceeding for enforcement of this
Agreement and the instruments and documents executed and delivered in connection
herewith which is determined by a court of competent jurisdiction not, as a
matter of law, to be subject to  arbitration as provided in Section
11.10 or which seeks injunctive relief shall be brought and enforced in the
courts of the State of Florida in and

     

    

    
      
        
           

        

        
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    for Pinellas
County, Florida, and the parties irrevocably submit to the jurisdiction of each
such court in respect of any such action or proceeding.

     

    Section 11.11.  Applicable
law.  This Agreement and all amendments thereof shall be
governed by and construed in accordance with the law of the State of Florida
applicable to contracts made and to be performed therein (not including the
choice of law rules thereof).

     

    IN WITNESS WHEREOF, the parties hereto have
caused this agreement to be signed by their respective officers thereunto duly
authorized and their respective corporate seals to be hereunto affixed, the day
and year first above written.

     

    
      	
              [Corporate
      Seal]

            	
              Turbine Truck
      Engines, Inc.

            
	
              Attest:

            	
              By:  /s/
      Michael Rouse

            
	 
    	
              Michael
      Rouse, President

            
	
              /s/ Phyllis
      J. Rouse

            	 
    
	
              Phyllis J.
      Rouse, Secretary

            	 
    
	
               [Corporate
      Seal]

            	
              High Point
      Acquisition, Inc.

            
	 
    	
              (following
      incorporation)

            
	
              Attest:

            	
              By:  _____________________________

            
	
              Michael
      Rouse, President

            	 
    
	
              _________________________

            	 
    
	
              Phyllis J.
      Rouse, Secretary

            	 
    
	
              [Corporate
      Seal]

            	
              High Point
      Transport, Inc.

            
	
              Attest:

            	
              By:  /s/
      Paul A. Henley

            
	 
    	
              Paul A.
      Henley, President

            
	
              /s/ Jackson
      L. Morris

            	 
    
	
              Jackson L.
      Morris, Secretary

            	 
    

    

    

     

    

    
      
        
           

        

        
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    EXHIBIT
“A”

     

    OFFICERS'
CERTIFICATE

     

    Pursuant to Section
3.0__ of the Merger and Exchange Agreement identified within

     

    The undersigned, ____________, President, and
__________, Treasurer, of ________________, a ___________ corporation (the
"Corporation"), hereby each certifies that he is familiar with the Merger and
Exchange Agreement, dated ________________, 2008 (the "Agreement"), between the
Corporation and ____________ and, to the best of his knowledge, based on
reasonable investigation:

     

    (a)  All representations and
warranties of the _____________ (as defined in the Agreement) contained in the
Agreement, and in all Exhibits and Schedules attached thereto containing
information delivered by ___________, were true and correct in all material
respects when made and when deemed to have been made and are true and correct at
the date hereof, except for changes in the ordinary course of business between
the date of the Agreement, in conformity with the covenants and agreements
contained in the Agreement.

     

    (b)  All covenants, agreements and
obligations required by the terms of the Agreement to be performed by
_______________ at or before the Closing have been duly and properly performed
in all material respects.

     

    (c)  Since the date of the Agreement
there have not occurred any material adverse change in the condition or
prospects (financial or otherwise), business, properties or assets of the
____________________.

     

    IN WITNESS WHEREOF, each of the undersigned has
executed this certificate this ________________, 2008.

     

    

     

    
      	 
    	
              ________________________________

            
	 
    	
              _______________,
      President

            
	 
    	 
    
	 
    	
              ________________________________

            
	 
    	
              _______________,
      Treasurer

            

    

    

    

    
      
        
           

        

        
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19 Exhibits and Schedules

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
“B”

    SECRETARY'S
CERTIFICATE

     

    Pursuant to Section
3.0__ of the Merger and Exchange Agreement identified within.

     

    I, ___________, the duly elected, qualified and
acting Secretary of _________________, a corporation duly organized, existing
and in good standing under the laws of ____________, (the “Corporation”) do
hereby certify that:

     

    (i)  The following is a true and
complete copy of Resolution of the Board of Directors of the Corporation taken
and adopted on ________________, 2008, approving the Merger and Exchange
Agreement dated ________________, 2008, by and among the Corporation and
_____________, and that said Resolution has not been rescinded, revoked or
modified and is in full force and effect at the date hereof:

     

    

     

    (ii)  The persons whose names, titles
and signatures appear below are each the duly elected, qualified and acting
officers of the Corporation, hold on the date hereof the offices set forth
opposite their respective names and the signatures appearing opposite said names
are the genuine signatures of said persons:

     

    
      	
              Name

            	
              Title

            	
              Signature

            
	 
    	
              President

            	 
    
	 
    	
              Secretary

            	 
    
	 
    	
              Treasurer

            	 
    

    

     

    (iii)  I am authorized by the
Corporation to make the within certifications.

     

    IN WITNESS WHEREOF, I have executed this
Certificate on ________________, 2008.

     

    (CORPORATE
SEAL)

     

     

    
      	 
    	
              ________________________________

            
	 
    	
              _______________,
      Secretary

            

    

    

     

    I, ______________, President of
_______________, a __________ corporation, hereby certify that ______________
is  duly elected, qualified and acting Secretary of ______________ and
that the signature appearing above is his genuine signature.

     

    IN WITNESS WHEREOF, I have executed this
Certificate on ________________, 2008.

     

    
      	 
    	
              ________________________________

            
	 
    	
              _______________,
      President

            

    

    

     

    
      
        
           

        

        
          Page
20 Exhibits and Schedules

          
            

          

        

        
           

        

      

    

    

    Exhibit
“C”

     

    CLOSING
MEMORANDUM

     

    The undersigned parties to that certain Merger
and Exchange Agreement dated ________________, 2008, (“Agreement”) do hereby
certify one to the other that;

     

    1.  The Closing of the Agreement was
completed, as contemplated by the Agreement, on ________________, 2008 at ____
o’clock __.m.

     

    2.  All conditions to each of the
parties Closing the Agreement have been satisfied and, to the extent not
specifically satisfied, have been waived by the party entitled to waive the
conditions; except, the following conditions, if any, are waived only for the
purpose of Closing of the transaction contemplated by the Agreement, and are
required to be satisfied after the Closing by the party required to satisfy such
condition:

     

    [insert any such conditions and name of the
party required to satisfy it]

     

    3.  Capitalized terms herein have the
meaning assigned to them in the Agreement.

     

    For the purposes herein set forth, the parties
have executed this Memorandum at the date and time written above.

     

    
      	
              [Corporate
      Seal]

            	
              Turbine Truck
      Engines, Inc.

            
	
              Attest:

            	
              By:  _____________________________

            
	 
    	
              Michael
      Rouse, President

            
	
              _____________________________

            	 
    
	
              ______________,
      Secretary

            	 
    
	
               [Corporate
      Seal]

            	
              High Point
      Acquisition, Inc.

            
	 
    	
              (following
      incorporation)

            
	
              Attest:

            	
              By:  _____________________________

            
	 
    	
              Michael
      Rouse, President

            
	
              _____________________________

            	 
    
	
              _________________,
      Secretary

            	 
    
	
              [Corporate
      Seal]

            	
              High Point
      Transport, Inc.

            
	
              Attest:

            	
              By:  _____________________________

            
	 
    	
              Paul A.
      Henley, President

            
	
              _____________________________

            	 
    
	
              Jackson L.
      Morris, Secretary

            	 
    

    

    

     

    

    
      
        
           

        

        
          Page
21 Exhibits and Schedules

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
“D”

    Treatment of
Confidential Information

     

    The mutual objective of the parties under the
Merger and Exchange Agreement to which this Exhibit "D" is attached and
incorporated by reference is to provide appropriate protection for Confidential
Information while exchanging Confidential Information (defined below) for the
parties' mutual benefit and maintaining their ability to conduct their
respective business activities.  Each party agrees the following terms
apply when a party (the “Discloser”) discloses information to the other (the
“Recipient”) under this Agreement.  The consideration for this
Agreement is the disclosures which a party makes to the other in reliance on
this Agreement.

     

    1.  Each party agrees and
acknowledges that many of the other’s Confidential Information (as described
below) is considered to be trade secrets, confidential, proprietary and not
readily accessible to the public.  Each party believes that its own
Confidential Information represents a legitimate, valuable and protectible
interest and gives it a competitive advantage, which otherwise would be lost if
its Confidential Information was improperly disclosed or revealed.

     

    2.  The Recipient shall not, at any
time without the express written permission of the Discloser, disclose the
Discloser’s Confidential Information directly or indirectly to any person or
entity, except the Recipient may disclose the Confidential Information to the
Recipient’s Employees, Contractors and Agents (as defined below) during the term
of this Agreement if such Employees, Contractors and Agents have a need to know
the Confidential Information in order to complete any purpose for which the
Confidential Information is disclosed.  The Recipient shall have
entered into non-disclosure agreements with such Employees, Contractors, and
Agents having obligations of confidentiality as strict as those herein prior to
disclosure to such employees, contracts, and agents to assure against
unauthorized use or disclosure. The Recipient shall not use or threaten to use
Confidential Information in any way that is inconsistent with the provisions of
this Agreement or contrary to the instructions or interests of the
Discloser.  The Recipient shall not, directly or indirectly,
intentionally or negligently allow or assist others in using the Discloser’s
Confidential Information in any way inconsistent with the provisions of this
Agreement or contrary to the instructions or interests of the
Discloser.  The Recipient agrees not to use Confidential information
for its own benefit, unless specifically authorized so to do in writing by the
Disclose.

     

    

    
      
        
           

        

        
          Page
22 Exhibits and Schedules

          
            

          

        

        
           

        

      

    

    

    3.  Each party recognizes and
acknowledges that the improper disclosure or use of the Discloser’s Confidential
Information would cause irreparable injury to the Discloser by jeopardizing,
compromising, and perhaps eliminating the competitive advance the Discloser holds or may
hold because of the existence and secrecy of the Confidential Information or
would provide an unjustly obtained advantage to the Recipient.  Thus,
each party acknowledges and agrees that monetary damages shall not be a
sufficient remedy for the Discloser in the event of any breach or threatened
breach of this Agreement.  Therefore, each party stipulates and
warrants that in the event a Recipient breaches, or reasonably threatens to
breach, this Agreement, the Discloser party shall be entitled, without waiving
any other rights or remedies in law or in equity, to such injunctive and/or
other equitable relief, without (a) having to show or prove irreparable harm as
may be deemed proper by a court of competent jurisdiction and (b) the
requirement imposed by the Court for posting bond which requirement is hereby
specifically and knowingly waived.

     

    4.  The Recipient agrees to use the
same care and discretion to avoid improper disclosure, publication or
dissemination of the Disclosure’s Confidential Information as it uses with its
own similar information that it does not wish to disclose, publish or
disseminate, but in no event less than reasonable and prudent care.

     

    5.  As used in this Agreement the
“Confidential Information” means all tangible and intangible information that is
disclosed by the Discloser to the Recipient (either orally, or by visual
inspection, and/or in writing), including but not limited to (a) currently
available and planned products and services; (b) information regarding
distributors, suppliers, developers, contractors and funding sources; (c)
financial and management information; (d) product information; (e) research
and/or development information; (f) information pertaining to actual and/or
potential customers, suppliers, and/or strategic alliances; (g) information of a
confidential or private nature relating to Employees and Agents (as defined
below); (h) financial data and information; (i) business plans; (j) marketing
materials and/or strategies; (k) legal matters, including current and/or
potential contracts and/or litigation; (l) in-house e-mail, Internet, security,
and/or other systems; (m) information received by the Discloser from third
parties that the Discloser is obligated to treat as confidential; and/or (n) any
and all information regarding the foregoing that the Discloser discloses to the
Recipient.  Failure to include a confidentiality notice on any
materials disclosed to the Recipient shall not give rise to inference that the
information disclosed is not confidential.  Confidential Information
disclosed to the Recipient by any parent corporation, subsidiary, agent and/or
affiliated entities of the Discloser or by persons that owe the obligation of
confidentiality to the Discloser, whether by contract or otherwise, is also
covered by this Agreement.

     

    “Employees and
Agents” shall mean the employees, agents, representatives, consultants and
independent contractors affiliated with each of us separately.

     

    6.  Confidential Information shall
not include any information which the Recipient can, by clear and convincing
evidence, establish:

     

    (a)  Is or subsequently becomes
publicly available without the Recipient’s breach of any obligation owed to the
Discloser under this Agreement;

     

    

    
      
        
           

        

        
          Page
23 Exhibits and Schedules

          
            

          

        

        
           

        

      

    

    

    (b)  Was rightfully in the possession
of or known to the Recipient prior to the Discloser’s disclosure of such
information to the Recipient, as evidenced by documentation on record at the
time of disclosure;

     

    (c)  Became known to the Recipient
from a source independent from the Discloser and such independent source did not
breach an obligation of confidentiality owed to the Discloser;

     

    (d)  Was independently developed by
the Recipient without any breach of this Agreement; or

     

    (e)  Was originally disclosed as
Confidential Information hereunder but which the Discloser thereafter authorizes
the Recipient to use and/or disclose, and such authorization is in writing which
is signed by authorized representatives of the parties;

     

    (f)  Becomes available to the
Receiving Party by wholly lawful inspection or analysis of products offered for
sale; or

     

    (g)  Is transmitted by a party after
receiving written notification from the other party that it does not desire to
receive any further Confidential Information.

     

    The Receiving Party
may disclose Confidential Information nevertheless pursuant to a valid order
issued by a court or government agency, provided that the Receiving Party
provides the Disclosing Party (i)  prior written notice of such
obligation; and (ii) the opportunity to oppose such disclosure or obtain a
protective order.

     

    7.  The Recipient shall notify the
Discloser immediately upon discovery of any unauthorized disclosure of the
Confidential Information, or any other breach of this Agreement by the Recipient
and/or the Recipient’s Employees and/or Agents, and will cooperate with the
Discloser in every reasonable way at the Recipient’s sole cost and expense to
prevent its further unauthorized disclosure and/or further breach of this
Agreement.

     

    8.  Neither this Agreement nor any
disclosure of Confidential Information hereunder grants the Recipient any rights
or license under any trademark, copyright or patent now or hereafter owned or
controlled by the Discloser.

     

    9.  The Recipient acknowledges and
agrees that its limited right to evaluate the Discloser’s Confidential
Information shall immediately expire at the completion of the purpose for which
the Confidential Information is delivered, if this Agreement is not terminated
earlier and then, in that event, the Recipient’s right to evaluate such
Confidential Information shall immediately terminate.  The Recipient
therefore agrees to return any and all Confidential Information of the Discloser
that is in a tangible form, including all originals, copies reproductions, and
summaries thereof, to the Discloser within five business days of the date this
Agreement expires or is terminated, whichever occurs first, or upon the
Discloser’s request, and to also completely erase and destroy any and all copies
of all portions of any and all software comprising the Confidential Information
in its possession and/or under its responsibility or control which may have been
loaded onto the computers of the Recipient and/or its Employees and
Agents.

     

    10.  This Agreement shall continue
from the date last written below until terminated by either party by giving
thirty days' written notice to the other party of its intent to terminate this
Agreement.  Information disclosed pursuant to this Agreement will be
subject to the terms of this Agreement for five years following the termination
of this Agreement.

     

    

    
      
        
           

        

        
          Page
24 Exhibits and Schedules

          
            

          

        

        
           

        

      

    

    

    11.  The terms of confidentiality
under this Agreement shall not be construed to limit either party’s right to
independently develop or acquire products without use of the other party’s
Confidential Information. The Disclosing Party acknowledges that the Receiving
Party may currently or in the future be developing information internally, or
receiving information from other parties, that is similar to the Confidential
Information. Accordingly, nothing in this Agreement prohibit the Receiving Party
from developing or having developed for it products, concepts, systems or
techniques that are similar to or compete with the products, concepts, systems
or techniques contemplated by or embodied in the Confidential Information
provided that the Receiving Party does not violate any of its obligations under
this Agreement in connection with such development.  Further, either
party shall be free to use for any purpose the “residuals,” provided that such
party shall not use in any manner information that is considered Confidential
Information under this Agreement and shall maintain the confidentiality of the
Confidential Information as provided herein.  The term “residuals”
means ideas, concepts, know-how or techniques that may be generated, developed
or conceived by the Receiving Party in connection with reviewing the
Confidential Information and in no circumstance shall “residuals” be deemed to
include Confidential Information.  Neither party shall have any
obligation to limit or restrict the assignment of such persons or to pay
royalties for any work resulting from the use of residuals.

     

    12.  The Receiving Party shall not
remove, overprint or deface any notice of confidentiality, copyright, trademark,
logo, legend, or other notices of ownership or confidentiality from any
originals or copies of Confidential Information it obtains from the Disclosing
Party.

     

    13.  CONFIDENTIAL INFORMATION IS
PROVIDED “AS IS” WITH ALL FAULTS. IN NO EVENT SHALL THE DISCLOSING PARTY BE
LIABLE FOR THE ACCURACY OR COMPLETENESS OF THE CONFIDENTIAL
INFORMATION.  None of the Confidential Information disclosed by the
parties constitutes any representation, warranty, assurance, guarantee or
inducement by either party to the other with respect to the infringement of
trademarks, patents, copyrights; any right of privacy; or any rights of third
persons.

     

    14.  The parties acknowledge that the
Confidential Information disclosed by each of them under this Agreement may be
subject to export controls under the laws of the United States. Each party shall
comply with such laws and agrees not to knowingly export, re-export or transfer
Confidential Information of the other party without first obtaining all required
United States or other governmental authorizations or licenses.

     

    15.  The parties hereto are
independent contractors. Neither this Agreement nor any right granted hereunder
shall be assignable or transferable by operation of law or
otherwise.  Any such purposed assignment shall be void.

     

     

     

    
      
        
        

      

      
        Page
25 Exhibits and Schedules

        
          

        

      

      
        
        

      

    

     

     

    [End of
Confidentially Agreement – Exhibit “D”]

    INDEX TO
SCHEDULES

    MERGER AND EXCHANGE
AGREEMENT

    Dated January ____,
2008

     

     

    
Page 26 Exhibits
and SchedulesEXHIBIT
10.3

 

AMENDMENT NO. 8 AND AGREEMENT

 

                This AMENDMENT NO.
8 AND AGREEMENT (“Agreement”) entered into and made effective as of January 16,
2008 (“Effective Date”) is among Cano Petroleum, Inc., a Delaware
corporation (“Borrower”), the Guarantors (as defined below), the Lenders (as
defined below), and Union Bank of California, N.A., as administrative agent for
such Lenders (in such capacity, the “Administrative Agent”) and as issuing
lender (in such capacity, the “Issuing Lender”).

 

RECITALS

 

A.            The Borrower is
party to that certain Credit Agreement dated as of November 29, 2005, as
amended by the Amendment No. 1 dated as of February 24, 2006, and as
amended by the Amendment No. 2, Assignment and Agreement dated as of April 28,
2006, Amendment No. 3 entered into on May 12, 2006 but made effective
as of March 31, 2006, Amendment No. 4 dated as of June 30, 2006,
Amendment No. 5 and Agreement dated as of March 6, 2007, Amendment No. 6
dated as of August 13, 2007, and Amendment No. 7 and Agreement dated
as of September 7, 2007 (as so amended, the “Credit Agreement”) among the
Borrower, the lenders party thereto from time to time (the “Lenders”), the
Administrative Agent, and the Issuing Lender.

 

B.            The Borrower intends to sell certain
workover rigs and other related equipment, each as more particularly described
in the attached Schedule A (the “Rig Assets”) and to effect such sale (the “Rig
Sale”), the Borrower intends to transfer such assets to a newly created,
indirect subsidiary held by W.O. Operating Company, Ltd. (“W.O. Operating”) and
W.O. Operating intends to sell 100% of the equity interests that it holds in
such new subsidiary to the intended purchasers of the Rig Assets.

 

C.            The anticipated Rig Sale
transaction, including the creation of the new subsidiary in connection
therewith, is limited by the terms of the Credit Agreement.

 

D.            Therefore, in order to address the
provisions of the Credit Agreement which (i) require the Borrower to take
certain action upon the creation of a new subsidiary and (ii) limit the
Borrower’s ability to sell or transfer the Rig Assets, the Borrower, the
Lenders and the Administrative Agent wish to, subject to the terms and
conditions of this Agreement make certain amendments to the Credit Agreement as
provided herein.

 

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

 

Section 1.              Defined
Terms.  As used in
this Agreement, each of the terms defined in the opening paragraph and the
Recitals above shall have the meanings assigned to such terms therein.  Each term defined in the Credit Agreement and
used herein without definition shall have the meaning assigned to such term in
the Credit Agreement, unless expressly provided to the contrary.

 

Section 2.              Other
Definitional Provisions. Article, Section, Schedule,
and Exhibit references are to Articles and Sections of and Schedules and
Exhibits to this Agreement, unless 

 

 

1

 

 

otherwise
specified.  All references to instruments,
documents, contracts, and agreements are references to such instruments,
documents, contracts, and agreements as the same may be amended, supplemented,
and otherwise modified from time to time, unless otherwise specified.  The words “hereof”, “herein”, and “hereunder”
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement.  The term “including” means “including,
without limitation,”.  Paragraph headings
have been inserted in this Agreement as a matter of convenience for reference
only and it is agreed that such paragraph headings are not a part of this
Agreement and shall not be used in the interpretation of any provision of this
Agreement.

 

Section 3.                                          Amendments to Credit Agreement.

 

(a)                                            Section 1.01 of the Credit Agreement
is hereby amended by adding the following new defined terms in alphabetical order:

 

“Amendment No. 8” means that certain
Amendment No. 8 and Agreement dated as of January 16, 2008 and which
amends this Agreement.

 

“Rig Subsidiary” means W.O. Transition,
L.C., a Texas limited liability company and a wholly owned, indirect Subsidiary
of the Borrower formed in connection with a proposed sale of the Rig Assets.

 

“Rig Sale” means the sale of the Equity
Interests in the Rig Subsidiary to one or more unaffiliated third parties on or
before February 28, 2007.

 

“Rig Assets” means certain workover rigs and
other equipment, as more particularly described in Schedule A attached to
Amendment No. 8.

 

(b)                                           Section 1.01 of the Credit Agreement is hereby amended
by deleting the defined term “Subsidiary” in
its entirety and replacing it with the following:

 

“Subsidiary” means, with respect to any Person (the “parent”)
at any date, any other Person the accounts of which would be consolidated with
those of the parent in the parent’s consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any Person, a majority of whose outstanding Voting Securities (other
than directors’ qualifying shares) shall at any time be owned by such parent or
one or more Subsidiaries of such parent. 
Unless
otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries”
shall refer to a Subsidiary or Subsidiaries of the Borrower; provided that (a) Tri-Flow
shall not be considered a Subsidiary of the
Borrower or any Guarantor and (b) Rig Subsidiary shall not be considered a
Subsidiary of the Borrower or any Guarantor.

 

(c)                                            Section 6.04 of the Credit Agreement
is hereby deleted in its entirety and replaced with the following:

 

Section 6.04                            Merger or Consolidation; Asset
Sales.  The Borrower shall not, nor shall it permit
any of its Subsidiaries to (a) merge or consolidate with or into 

 

 

2

 

 

any other
Person without the prior consent of all of the Lenders; provided that the
Borrower or any Subsidiary may merge or may be consolidated into the Borrower
or any Guarantor if the Borrower or such Guarantor is the surviving entity; or (b) sell,
lease, transfer, assign, farm-out, convey, or otherwise dispose of any of its
Property (including, without limitation, any working interest, overriding
royalty interest, production payments, net profits interest, royalty interest,
or mineral fee interest) other than: (i) the sale of Hydrocarbons in the
ordinary course of business, (ii) the sale or transfer of equipment that
is (A) obsolete, worn out, depleted or uneconomic and disposed of in the
ordinary course of business, (B) no longer necessary for the business of
such Person or (C) contemporaneously replaced by equipment of at least
comparable value and use, (iii) the transfer of the Rig Assets by the
Borrower to the Rig Subsidiary in connection with the Rig Sale, and (iv) the
Rig Sale.

 

(d)                                           Section 6.21
of the Credit Agreement is hereby replaced in its entirety with the following:

 

Section 6.21.                         Non-Guarantor Subsidiary. 
Notwithstanding anything to the contrary contained herein, including any
provision of this Article VI, the Borrower shall not, nor shall it permit
any of its Subsidiaries to, (a) create, assume, incur or suffer to exist
any Lien on or in respect of any of its Property for the benefit of Tri-Flow or
the Rig Subsidiary, (b) sell, assign, pledge, or otherwise transfer any of
its Properties to Tri-Flow, (c) other than the Rig Assets, sell, assign,
pledge, or otherwise transfer any of its Properties to the Rig Subsidiary  or (d) make or permit to exist any
loans, advances, or capital contributions to, or make any investment in, or
purchase or commit to purchase any stock or other securities or evidences of
indebtedness of or interests in, Tri-Flow, the Rig Subsidiary or in any
Properties of Tri-Flow or of the Rig Subsidiary other than the loans, advances,
capital contributions, investments, and commitments made prior to the date
hereof in Tri-Flow; provided that, the respective amounts of such loans,
advances, capital contributions, investments, and commitments shall not be
increased (other than by appreciation).

 

(e)                                            Schedule 4.07
which is attached to the Credit Agreement is hereby replaced in its entirety
with the Schedule 4.07 attached to this Agreement.

 

Section 4.                                          Mandatory Prepayment. 
Within two Business Days after receipt of the proceeds from the Rig Sale
(the “Asset Sale Proceeds”), the Borrower shall prepay the Advances or, if the
Advances have been repaid in full, make deposits into the Cash Collateral
Account to provide cash collateral for the Letter of Credit Exposure, in an
amount equal to 100% of the Asset Sale Proceeds after payment of, or provision
for, all fees and expenses incurred in connection with such Rig Sale.  The failure to comply with this Section 4
shall be an immediate Event of Default under the Credit Agreement.

 

Section 5.                                          Borrower Representations and Warranties.  The Borrower represents and warrants that: (a) after
giving effect to this Agreement, the representations and warranties contained
in the Credit Agreement and the representations and warranties contained in the
other 

 

 

3

 

 

Loan
Documents are true and correct in all material respects on and as of the
Effective Date as if made on as and as of such date except to the extent that
any such representation or warranty expressly relates solely to an earlier
date, in which case such representation or warranty is true and correct in all
material respects as of such earlier date; (b) after giving effect to this
Agreement, no Default has occurred and is continuing; (c) the execution, delivery and performance of
this Agreement are within the corporate power and authority of the Borrower and
have been duly authorized by appropriate corporate and governing action and
proceedings; (d) this Agreement constitutes the legal, valid, and binding
obligation of the Borrower enforceable in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the rights of creditors generally and general principles
of equity; (e) there are no governmental or other third party consents,
licenses and approvals required in connection with the execution, delivery,
performance, validity and enforceability of this Agreement; and (f) the
Liens under the Security Instruments are valid and subsisting and secure
Borrower’s obligations under the Loan Documents.

 

Section 6.              Guarantors Representations and Warranties.  Each Guarantor represents and warrants that: (a) after
giving effect to this Agreement, the representations and warranties contained
in the Guaranty and the representations and warranties contained in the other
Loan Documents are true and correct in all material respects on and as of the
Effective Date as if made on as and as of such date except to the extent that
any such representation or warranty expressly relates solely to an earlier
date, in which case such representation or warranty is true and correct in all
material respects as of such earlier date; (b) after giving effect to this
Agreement, no Default has occurred and is continuing; (c) the execution,
delivery and performance of this Agreement are within the corporate, limited
liability company, or partnership power and authority of such Guarantor and
have been duly authorized by appropriate corporate, limited liability company,
or partnership action and proceedings; (d) this Agreement constitutes the
legal, valid, and binding obligation of such Guarantor enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the rights of
creditors generally and general principles of equity; (e) there are no
governmental or other third party consents, licenses and approvals required in
connection with the execution, delivery, performance, validity and
enforceability of this Agreement; (f) it has no defenses to the
enforcement of the Guaranty; and (g) the Liens under the Security
Instruments are valid and subsisting and secure such Guarantor’s and the
Borrower’s obligations under the Loan Documents.

 

Section 7.              Conditions to Effectiveness.  This Agreement and the
amendments to the Credit Agreement provided herein shall become effective on
the Effective Date and enforceable against the parties hereto upon the
occurrence of the following conditions precedent:

 

(a)               The
Administrative Agent shall have received multiple original counterparts, as
requested by the Administrative Agent, of this Agreement duly and validly
executed and delivered by duly authorized officers of the Borrower, the
Guarantors, the Administrative Agent, and the Lenders.

 

(b)              No Default shall have occurred and be continuing as of
the Effective Date.

 

 

4

 

 

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

 

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

 

Section 8.              Acknowledgments and Agreements.

 

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

 

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

 

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

 

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

 

(e)               This Agreement is a Loan Document for the purposes of
the provisions of the other Loan Documents. 
Without limiting the foregoing, any breach of representations,
warranties, and covenants under this Agreement shall be a Default or Event of
Default, as applicable, under the Credit Agreement.

 

Section 9.              Reaffirmation of the Guaranty.  Each Guarantor hereby ratifies, confirms,
acknowledges and agrees that its obligations under the Guaranty are in full
force and effect and that such Guarantor continues to unconditionally and
irrevocably guarantee the full and punctual payment, when due, whether at stated
maturity or earlier by acceleration or otherwise, all of the Guaranteed
Obligations (as defined in the Guaranty), as such Guaranteed Obligations may
have been amended by this Agreement, and its execution and delivery of this
Agreement does not indicate or establish an approval or consent requirement by
such Guarantor under the Guaranty in connection with the execution and delivery
of amendments, consents or waivers to the Credit Agreement, the Notes or any of
the other Loan Documents.

 

Section 10.            Counterparts.  This Agreement may be signed in any number of
counterparts, each of which shall be an original and all of which, taken
together, constitute a 

 

 

5

 

 

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

 

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

 

Section 12.            Invalidity.  In the event that any one or more of the
provisions contained in this Agreement shall for any reason be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement.

 

Section 13.            Governing
Law.  This
Agreement shall be deemed to be a contract made under and shall be governed by
and construed in accordance with the laws of the State of Texas.

 

Section 14.            Entire
Agreement. THIS AGREEMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS AGREEMENT, THE
NOTES, AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG
THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY
PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.

 

THERE ARE NO UNWRITTEN
ORAL AGREEMENTS AMONG THE PARTIES.

 

[SIGNATURES BEGIN ON NEXT PAGE]

 

 

6

 

EXECUTED effective as of
the date first above written.

 

	
  BORROWER:

  	
  CANO
  PETROLEUM, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:
  

  	
  /s/
  S. Jeffrey Johnson

  
	
   

  	
   

  	
   

  	
  S.
  Jeffrey Johnson

  
	
   

  	
   

  	
   

  	
  Chairman
  and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
  GUARANTORS:

  	
   

  	
  SQUARE
  ONE ENERGY, INC.

  
	
   

  	
   

  	
  LADDER
  COMPANIES, INC.

  
	
   

  	
   

  	
  W.O.
  ENERGY OF NEVADA, INC.

  
	
   

  	
   

  	
  WO
  ENERGY, INC.

  
	
   

  	
   

  	
  PANTWIST,
  LLC

  
	
   

  	
   

  	
  CANO
  PETRO OF NEW MEXICO, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Each by:

  	
  /s/ S. Jeffrey Johnson

  
	
   

  	
   

  	
   

  	
  S. Jeffrey Johnson

  
	
   

  	
   

  	
   

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  W.O. OPERATING COMPANY, LTD.

  
	
   

  	
   

  	
  By:
  WO Energy, Inc., its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  S. Jeffrey Johnson

  
	
   

  	
   

  	
   

  	
  S.
  Jeffrey Johnson

  
	
   

  	
   

  	
   

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  W.O.
  PRODUCTION COMPANY, LTD.

  
	
   

  	
   

  	
  By:
  WO Energy, Inc., its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  S. Jeffrey Johnson

  
	
   

  	
   

  	
   

  	
  S.
  Jeffrey Johnson

  
	
   

  	
   

  	
   

  	
  President

  
									

 

 

 

	
  ADMINISTRATIVE AGENT/

  	
   

  
	
  ISSUING LENDER/LENDER:

  	
  UNION
  BANK OF CALIFORNIA, N.A.,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Sean Murphy

  
	
   

  	
   

  	
  Sean
  Murphy

  
	
   

  	
   

  	
  Senior
  Vice President

  
				

 

 

 

	
   

  	
  NATIXIS,
  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  

  	
  Liana
  Tchernysheva

  
	
   

  	
  Name:

  	
  Liana
  Tchernysheva

  
	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  

  	
  Donovan
  C. Broussard

  
	
   

  	
  Name:

  	
  Donovan
  C. Broussard

  
	
   

  	
  Title:

  	
  Managing
  Director

  

 

 

 

 

Schedule A

 

Rig Assets

 

 

	
  WELL
  SERVICING/CABLE TOOL RIGS

  
	
   

  
	
  UNIT #313, 1989 FRANKS
  1058/120 Explorer III Double Drum Well Servicing Unit, S/N-89024-7

  
	
   

  
	
  UNIT #207, 1984 FRANKS
  1058/120 Double Drum Well Servicing Unit, S/N-84002-7

  
	
   

  
	
  UNIT #208, 1984 INGERSOLL
  RAND 1058 Well Servicing Unit, 200 Series, S/N-84003-7

  
	
   

  
	
  UNIT #209, 1983 FRANKS
  1058/120 Well Servicing Unit, S/N-83047-7T-40

  
	
   

  
	
  UNIT #206, 1977 FRANKS
  Explorer Double Drum Well Servicing Unit, S/N-74045-7,

  
	
   

  
	
  UNIT #317, 1974 FRANKS
  Explorer 1058 Double Drum Well Servicing Unit, S/N-N/A

  
	
   

  
	
  UNIT #316, FRANKS
  Cruiser 44DTMS Well Servicing Unit, S/N-1683

  
	
   

  
	
  UNIT #315, FRANKS 44
  Pulling Unit, S/N-N/A

  
	
   

  
	
  UNIT #314, 1966 FRANKS
  1058DTM Rocket II Series Well Servicing Unit, S/N-66030-6

  
	
   

  
	
  UNIT #212, 1963 FRANKS
  Double Drum Pulling SN #63038-1

  
	
   

  
	
  UNIT #333, WALKER NEER
  C-33 Cable Tool Rig, S/N-N/A

  
	
   

  
	
  UNIT #334, WALKER NEER
  C-33 Cable Tool Rig, S/N-N/A

  

 

 

TRUCKS AND OTHER EQUIPMENT

 

	
  CABLE
  TOOLS (Group Value)

  
	
   

  
	
  7” Casing Patch,
  (10) 4”-8” Clulow Sockets, (5) 4”-6” Latch Jacks, Circle w/Jacks,
  (4) 4”-6” Kick-Off Tools, (10) Sockets, (10) Friction Sockets,
  (10) Drill Stems, (3) Long Stroke Jars, (5) Drilling Jars,
  (20) Drill Bits, (10) Wireline Spears, (10) Cherry

  
	
   

  
	
   

  
	
  ROLLING
  STOCK

  
	
  1977 CHEVROLET Truck,
  VIN-CN1957V119993

  
	
   

  
	
  1989 FORD Bucket Truck,
  VIN-1FDNK74P8KVA36049

  
	
   

  
	
  1998 INTERNATIONAL 4900
  Tester Truck, VIN-1HTSDAANXWH541390

  
	
   

  
	
  1998 INTERNATIONAL 4900
  Truck, VIN-1HTSDAAN3WH541389, w/Steamer

  

 

 

 

 

	
  1998 INTERNATIONAL 4900
  Boom Truck, VIN-1HTSDAAN1WH541391

  
	
   

  
	
  UNIT #250, 1992
  INTERNATIONAL 4900 Truck, VIN-1HTSDPNN4NH455505

  
	
   

  
	
  UNIT #334, 1992
  INTERNATIONAL 4900 Truck, VIN-1HTSDPNNXNH441060

  
	
   

  
	
  UNIT #211, 1991
  INTERNATIONAL 4700 Dump Truck, VIN-1HTSCNMPOMH392976

  
	
   

  
	
  UNIT #313, 1987
  INTERNATIONAL 50-Barrell Water Truck, VIN-1HTLDUXP5HH500120

  
	
   

  
	
  UNIT #344, 1986
  INTERNATIONAL Truck, VIN-1HTLCHXM0GHA52418

  
	
   

  
	
  UNIT #314, 1984
  INTERNATIONAL Truck, VIN-1HTLDUXN5EHA59313

  
	
   

  
	
  UNIT #209, 1983
  INTERNATIONAL 1845 Truck, VIN-1HTDA1957DHA16874

  
	
   

  
	
  UNIT #212, 1981
  INTERNATIONAL 1845 Truck, VIN-1HTAA1851BHA29279

  
	
   

  
	
  UNIT #208, 1981
  INTERNATIONAL 60-Barrell Water Truck, VIN-2HTAA185XBCA14643

  
	
   

  
	
  1981 INTERNATIONAL
  Water Truck, VIN-1HTE23272BGA13344

  
	
   

  
	
  UNIT #334, 1981
  INTERNATIONAL Truck, VIN-1HTL23277BGA21737

  
	
   

  
	
  UNIT #333, 1981
  INTERNATIONAL Truck, VIN-1HTE23279BGA13180

  
	
   

  
	
  UNIT #206, 1980
  INTERNATIONAL 50-Barrell Water Truck, VIN-AA185KHA16565

  
	
   

  
	
  1978 INTERNATIONAL
  Winch Truck, VIN-CF257HHA25445

  
	
   

  
	
  UNIT #207, 1972 MACK
  50-BARRELL Water Truck, VIN-R685ST29122

  
	
   

  
	
  UNIT #250, 2005 FORD
  F350 1-Ton Pickup, VIN-1FDWF37P75ED29216, w/10-Barrell Tank, 2” MASSPORT Pump

  
	
   

  
	
  UNIT #212, 2005 FORD
  F250 3/4-Ton 4WD Pickup, VIN-1FTNF21575EA33114

  
	
   

  
	
  UNIT #315, 2005 FORD
  F250 3/4-Ton 4WD Pickup, VIN-1FTNF21555EA33113

  
	
   

  
	
  UNIT # 201 FORD F150
  1/2 TON

  
	
   

  
	
  UNIT # 322 FORD F250
  3/4 TON

  
	
   

  
	
  1989 BELSCHE Backhoe
  Trailer, VIN-16JF01631K1020647

  
	
   

  
	
  BELSCHE Backhoe
  Trailer, VIN-N/A

  
	
   

  
	
  1967 BEAL Belly Dump
  Trailer, VIN-DHS8040671337

  

 

 

 

 

	
  1983 MIM Vacuum
  Trailer, VIN-61681

  
	
   

  
	
  (12) Assorted Tubing
  Trailers, VIN’s-N/A

  
	
   

  
	
  (2) Flat Bed
  Trailers, VIN’s-N/A

  
	
   

  
	
  Single Axle Poly Pipe
  Trailer, VIN-N/A

  
	
   

  
	
  Poly Pipe Fusion
  Machine Trailer, VIN-N/A

  
	
   

  
	
  Pressure Washer
  Trailer, VIN-N/A

  
	
   

  
	
  Lighting Trailer,
  VIN-N/A

  
	
   

  
	
   

  
	
  CONSTRUCTION
  EQUIPMENT

  
	
   

  
	
  1998 CASE 580 SL Loader
  Backhoe, S/N-JJG0204096

  
	
   

  
	
  1982 CATERPILLER 140G
  Motor Grader, S/N-72V06257

  
	
   

  
	
  2005 CASE 580

  
	
   

  
	
   

  
	
  RELATED EQUIPMENT

  
	
   

  
	
  (4) BOWEN
  Series-150, 3-3/4” Overshots, (28) #37590 Grapples, (16) Grapple Controls,
  (6) Top Subs, (5) Guides

  
	
   

  
	
  (1) BOWEN
  Series-150, 4-11/16” Overshot, (91) #6662 Grapples, (40) Grapple Controls,
  (8) Top Guides, (8) Lip Guides

  
	
   

  
	
  (1) BOWEN
  Series-70, 4-11/16” Short Catch Overshot, (23) #10546 Grapples,
  (1) Grapple Control

  
	
   

  
	
  (1) BOWEN
  Series-70, 3-3/4” Short Catch Overshot, (13) #13538 Grapples,
  (2) Grapple Controls

  
	
   

  
	
  (1) BOWEN 4-11/16”
  Clulow Socket, (3) Slips

  
	
   

  
	
  (1) BOWEN 3-3/4”
  Clulow Socket, (11) Slips

  
	
   

  
	
  (4) BOWEN-ITCO
  2-3/8” Tubing Releasing Spear, (12) #1348 Grapples

  
	
   

  
	
  (1) BOWEN 5”
  Tubing Spear, (4) #9682 Grapples

  
	
   

  
	
  (1) BOWEN 4”
  Tubing Spear, (2) #9487 Grapples

  
	
   

  
	
  (3) Assorted
  Casing Scrapers, 4”-7”

  
	
   

  
	
  (2) 3-3/4” Bumper
  Subs, (3) Bumper Sub Scratchers

  
	
   

  
	
  2-3/8” — 2-7/8” Bulldog
  Spears

  

 

 

 

 

	
  Rope Knife w/Long
  Stroke Jars

  
	
   

  
	
  MYT Slip Type Elevator,
  (3) Sets Slips

  
	
   

  
	
  LYT Slip Type Elevator,
  (9) Sets Slips

  
	
   

  
	
  5/8”, 3/4”, 7/8” Deep
  Hole Rod Elevators

  
	
   

  
	
  1/2”, 5/8”, 3/4”
  Shallow Hole Rod Elevators

  
	
   

  
	
  (6) Single Latch
  Elevators, 3-1/2” Tubing Elevator, 4-1/2” Casing Elevator, 5-1/2” Elevator

  
	
   

  
	
  (2) Deep Well
  Slips, w/2-3/8”, 2-7/8”, 3-1/2”, 4-1/2”, 5-1/2” Slips

  
	
   

  
	
  (2) Drill Collar
  Safety Clamps, w/Wrench, Inserts

  
	
   

  
	
  (5) 3-3/4” Drill
  Collars

  
	
   

  
	
  (75) Assorted Crossover
  Subs, 2-3/8” EUE, 2-3/8” Reg, 2-3/8” IF, 2-7/8” EUE, 3” Pin, 3-1/2” Reg

  
	
   

  
	
  Oil Saver

  
	
   

  
	
  (3) TOTCO Pad Type
  Weight Indicators

  
	
   

  
	
  Flange Type Stripper
  Head, w/4”, 5”, 7” Flanges

  
	
   

  
	
  1997 Mack Bobtail 80
  bbl water truck 1M2P267C2VM029703

  
	
   

  
	
  1990 Ford F-450 winch
  truck 2FDLF47GXLCA58924

  
	
   

  
	
  1992 Franks Double Drum
  Pulling Unit w/ Mack Chassis Hand tools, sand pump and bailer, tongs

  
	
   

  
	
  1976 Franks Double Drum
  Pulling Unit w/ carrier frame hand tools, sand pump and bailer, tongs
  6VAD92906

  
	
   

  
	
  Tandem axle homemade
  tubing trailer

  
	
  Poly pipe trailer

  
	
  Single axle homemade
  trailer tubing trailer

  
	
   

  
	
  Dozer / Trailor

  
	
  316 2006 F-250 #19675

  
	
  333 2006 F-250 #19958

  
	
   

  
	
  1998 Case 580 SL Loader
  Backhoe, S/N-JJG0258766

  

 

 

 

Schedule
4.07

Litigation

 

Burnett:

 

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 gas
operations started a wildfire that began on March 12, 2006 in Carson
County.  The owner of the remainder of
the mineral estate, Texas Christian University, has intervened in the suit
joining the plaintiffs’ request to terminate certain oil and natural gas
leases.

 

The plaintiffs in the
above action (i) allege negligence and (ii) seek damages, including,
but not limited to, damages for damage to their land and livestock, certain expenses
related to fighting the fire and certain remedial expenses totaling
approximately $1.7 million to $1.8 million.  In addition, the plaintiffs seek (i) termination
of certain oil and natural gas leases, (ii) reimbursement for their
attorney’s fees (in the amount of at least $549,000) and (iii) exemplary
damages.  The plaintiffs also claim that
Cano and its subsidiaries are jointly and severally liable as a single business
enterprise and/or a general partnership or de facto partnership.

 

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.

 

Adcock:

 

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”).  There are 47 plaintiffs and three groups of
intervenors that claim that the electrical wiring and equipment of Cano or
certain of its subsidiaries relating to oil and gas operations started a
wildfire that began on March 12, 2006 in Carson County.

 

The plaintiffs and
intervenors (i) allege negligence, res ipsa loquitor, trespass and
nuisance and (ii) seek damages, including, but not limited to, damages to
their land, buildings and livestock and certain remedial expenses totaling
$11,297,684.  In addition, the plaintiffs
and intervenors seek (i) reimbursement for their attorney’s fees and (ii) exemplary
damages.  The plaintiffs also claim that
Cano and its subsidiaries are jointly and severally liable as a single business
enterprise and/or a general partnership or de facto partnership.  On August 28, 2007, one of the
intervenors, Travelers Lloyds Insurance Company, filed a Notice of Nonsuit
requesting the court to sign an order dismissing its claims, which seek
approximately $367,627 of total damages, without prejudice.   The Court granted the Nonsuit on September 12,
2007.

 

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 and
transferred the Adcock case to the Honorable Paul Davis, retired judge of the
200th District Court of Travis County, Texas.  No further action will be taken in the 31st
District Court until the 200th District Court resolves all pretrial
matters and remands this case to the 31st District Court for trial.

 

Hutchinson:

 

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”).  The plaintiffs claim that the electrical
wiring and equipment of Cano or certain of its subsidiaries relating to oil and
gas operations started a wildfire that began on March 12, 2006 in Carson
County.  The plaintiffs (i) allege
negligence and trespass and (ii) seek undisclosed 

 

 

 

 

damages, including, but
not limited to, damages to their land and certain remedial expenses.  In addition, the plaintiffs seek exemplary
damages.

 

On September 25,
2007, the Texas Judicial Panel on Multidistrict Litigation granted the
Company’s motion to transfer and transferred this case to the Honorable
Paul Davis, retired judge of the 200th District Court of Travis County,
Texas.  No further action will be taken in the 31st District Court
until the 200th District Court resolves all pretrial matters and remands this
case to the 31st District Court for trial.

 

On October 3, 2007,
Firstbank Southwest, as Trustee for the John and Eddalee Haggard Trust,
intervened in the consolidated case in the 200th District Court of Travis
County, Texas as part of the Hutchinson case.  The intervenor claims that
the electrical wiring and equipment of Cano or certain of its subsidiaries
relating to oil and gas operations started a wildfire that began on March 12,
2006 in Carson County.  The intervenor (i) alleges
negligence and (ii) seeks undisclosed damages, including, but not limited
to damages to their land and certain remedial expenses.

 

Chisum:

 

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”). 
The plaintiff claims that the electrical wiring and equipment of Cano or
certain of its subsidiaries relating to oil and gas operations started a
wildfire that began on March 12, 2006 in Carson County.  The plaintiff (i) alleges negligence and
trespass and (ii) seeks undisclosed damages, including, but not limited
to, damages to their land and certain remedial expenses.  In addition, the plaintiffs seek exemplary
damages.

 

On September 25,
2007, the Texas Judicial Panel on Multidistrict Litigation granted the
Company’s motion to transfer and transferred this case to the Honorable
Paul Davis, retired judge of the 200th District Court of Travis County,
Texas.  No further action will be taken in the 31st District Court
until the 200th District Court resolves all pretrial matters and remands this
case to the 31st District Court for trial.

 

Martinez:

 

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”).  The plaintiffs claim that the electrical
wiring and equipment of Cano or certain of its subsidiaries relating to oil and
gas operations started a wildfire that began on March 12, 2006 in Carson
County, Texas.  The plaintiffs (i) allege
negligence and (ii) seek undisclosed damages for the wrongful death of two
relatives, Gerardo Villarreal and Medardo Garcia, who they claim died as a
result of the fire.  An additional heir
of one of Medardo Garcia has intervened in this case alleging similar claims.

 

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 and
transferred the Martinez case to the Honorable Paul Davis, retired judge of the
200th District Court of Travis County, Texas.  No further action will be taken in the 31st
District Court until the 200th District Court resolves all pretrial
matters and remands this case to the 31st District Court for trial.

 

The plaintiffs and
intervenor nonsuited this case on December 19, 2007 and refiled in the 348th
Judicial District Court of Tarrant County, Texas as part of the Valenzuela case
described below.

 

Villarreal:

 

On August 9, 2006,
the following lawsuit was filed in the 233rd Judicial District Court of Gray
County, Texas, Yolanda Villarreal, Individually and on behalf of the Estate of
Gerardo Villarreal v. Cano Petroleum, Inc., W.O. Energy of Nevada, Inc.,
W. O. Operating Company, Ltd., and WO Energy, Inc. (“Villarreal”).  The plaintiffs claim that the electrical
wiring and equipment of Cano or certain of its subsidiaries relating to oil and
gas operations started a wildfire that began on March 12, 2006 in Carson
County, Texas. The plaintiffs (i) allege negligence and (ii) seek
undisclosed damages, including exemplary damages, for the wrongful death of
Gerardo Villarreal who they claim died as a result of the fire.  The plaintiffs also claim that Cano and its
subsidiaries are jointly and severally 

 

 

 

 

liable under vicarious
liability theories.  Relatives of Roberto
Chavira have intervened in the case alleging similar claims regarding the death
of Roberto Chavira.

 

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 and
transferred the Martinez case to the Honorable Paul Davis, retired judge of the
200th District Court of Travis County, Texas.  No further action will be taken in the 233rd
District Court until the 200th District Court resolves all pretrial
matters and remands this case to the 233rd District Court for trial.

 

SPS:

 

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”). The
plaintiffs claim that the electrical wiring and equipment of Cano or certain of
its subsidiaries relating to oil and gas operations started a wildfire that
began on March 12, 2006 in Carson County.

 

The plaintiff (i) alleges
negligence and breach of contract and (ii) seeks $1,876,000 in damages for
loss and damage to transmission and distribution equipment, utility poles, lines
and other equipment.  In addition, the
plaintiff seeks reimbursement for its attorney’s fees.  On May 15, 2007, three new plaintiffs
(one of which is a former plaintiff in the Adcock matter) intervened in the
lawsuit and (i) allege negligence, res ipsa loquitor, nuisance, and
trespass and (ii) seek damages, including, but not limited to, damages to
their land, buildings and livestock and certain remedial expenses totaling
approximately $201,280.  In addition, the
intervenors seek (i) reimbursement for their attorney’s fees and (ii) exemplary
damages.  The intervenors also claim that
Cano and its subsidiaries are jointly and severally liable as a single business
enterprise and/or as a partnership or de facto partnership.

 

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 and
transferred the SPS case to the Honorable Paul Davis, retired judge of the 200th
District Court of Travis County, Texas. 
No further action will be taken in the 100th District Court
until the 200th District Court resolves all pretrial matters and
remands this case to the 100th District Court for trial.

 

On January 10, 2008,
Philip L. Fletcher intervened in the consolidated case in the 200th District
Court of Travis County, Texas as part of the SPS case.  The intervenor (i) alleges
negligence, trespass and nuisance and (ii) seeks damages, including, but
not limited to, damages to his livestock, attorney’s fees and exemplary
damages.  The intervenor also claims that
Cano and its subsidiaries are jointly and severally liable as a single business
enterprise and/or as a partnership or de facto partnership.

 

On January 15, 2008,
the Jones and McMordie Ranch Partnership intervened in the consolidated case in
the 200th District Court of Travis County, Texas as part of the SPS case. 
The intervenor (i) alleges negligence, trespass and nuisance and (ii) seeks
exemplary damages.  The intervenor also
claims that Cano and its subsidiaries are jointly and severally liable as a
single business enterprise and/or as a partnership or de facto partnership.

 

Burgess:

 

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”).  Eleven plaintiffs claim that electrical
wiring and equipment relating to oil and gas operations of the Company or
certain of its subsidiaries started a wildfire that began on March 12,
2006 in Carson County, Texas.  Five of
the plaintiffs are former plaintiffs in the Adcock matter.  The plaintiffs (i) allege negligence, res ipsa loquitor, nuisance, and
trespass and (ii) seek damages, including, but not limited to, damages to
their land, buildings and livestock and certain remedial expenses totaling
approximately $1,152,480.  In addition,
the plaintiffs seek (i) reimbursement for their attorney’s fees and (ii) exemplary
damages.  The plaintiffs also claim that
Cano and its subsidiaries are jointly and severally liable as a single business
enterprise and/or as a partnership or de facto partnership.

 

 

 

 

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 and
transferred the Burgess case to the Honorable Paul Davis, retired judge of the
200th District Court of Travis County, Texas.  No further action will be taken in the 84th
District Court until the 200th District Court resolves all pretrial
matters and remands this case to the 84th District Court for trial.

 

MDL Case:

 

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, Villarreal,
Martinez, Southwestern Public Service Company 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 December 19, 2007, the plaintiffs and intervenor
in the Martinez case nonsuited their claims in the consolidated case.

 

Valenzuela:

 

On December 18, 2007, the following lawsuit was
filed in the 348th Judicial District Court of Tarrant County, Texas,
Case No. 348-227907-07, Norma Valenzuela, et al. v. Cano Petroleum, Inc.,
W.O. Energy of Nevada, Inc., W.O. Operating, Ltd. and WO Energy, Inc.
(“Valenzuela”).  Six plaintiffs,
including the two plaintiffs and intervenor from the nonsuited Martinez case, claim that the electrical wiring and equipment of Cano
or certain of its subsidiaries relating to oil and gas operations started a
wildfire that began on March 12, 2006 in Carson County.  The plaintiffs (i) allege negligence and
(ii) seek undisclosed damages for the wrongful death of four relatives,
Manuel Dominguez, Roberto Chavira, Gerardo Villarreal and Medardo Garcia, who
they claim died as a result of the fire. 
In addition, plaintiffs seek (i) reimbursement for their attorney’s
fees and (ii) exemplary damages.  
The plaintiffs also claim that Cano and its subsidiaries are jointly and
severally liable as a single business enterprise and/or as a partnership or de
facto partnership.  Cano and its
subsidiaries have not yet answered the lawsuit but intend to file a notice of
tag along to transfer the case to the MDL proceeding in the 200th
Judicial District Court of Travis County, Texas.

 

Due to the inherent risk of litigation, the outcome of
the cases listed above is uncertain and unpredictable; however, at this time,
Cano management believes the suits are without merit and is vigorously
defending itself and its subsidiaries.

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