Document:

Exhibit 4.1

 

	
  

  	
  RESACA
  EXPLOITATION, INC. (INCORPORATED IN THE STATE OF TEXAS, UNITED STATES OF
  AMERICA) CUSIP No: 76083G203 ISIN
  No: US76083G2030 Reference No. Certificate No. Transfer No. Number of Shares
  RESACA EXPLOITATION, INC. COMMON STOCK This is to certify that the
  above-named is/are the Registered Holder(s) of COMMON STOCK OF US$0.01 RESACA
  EXPLOITATION, INC. (the “Corporation”), transferable on the books of the
  Corporation by the said owner in person, or by duly authorized attorney, upon
  surrender of this Certificate properly endorsed. This Certificate and the
  shares represented hereby are subject to all the terms, conditions and
  limitations of the Certificate of Incorporation and a amendments thereto and
  supplements thereof. This Certificate is not valid until countersigned and
  registered by the Registrar. WITNESS the facsimile seal of the Corporation
  and the facsimile signatures of the Corporation’s duly authorized officers.
  BATTLE OF RESACA DE LA PALMA, May 9th, 1846 Dated CHIEF EXECUTIVE OFFICER COMPANY
  SECRETARY Countersigned by Graeme Ross, for Registrar Countersigned by Sophie
  de Freitas, for Registrar RESACA EXPLOITATION, INC.
  CORPORATE SEAL TEXAS John Lendrum Mary Lou Fry

  

 

	
  

  	
  RESACA
  EXPLOITATION, INC. (INCORPORATED IN THE STATE OF TEXAS, UNITED STATES OF
  AMERICA) CUSIP No: U76085 106 ISIN
  No: USU760851068 THE COMMON SHARES EVIDENCED HEREBY HAVE NOT BEEN AND WILL
  NOT BE REGISTERED UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE
  “SECURITIES ACT”), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE
  OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD,
  PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER
  AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVES IS A QUALIFIED
  INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
  PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
  INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
  (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF
  REGULATION S UNDER THE SECURITIES ACT OR (3) PURSUANT TO AN EXEMPTION FROM
  REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) AND (B) IN ACCORDANCE WITH ANY
  APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
  JURISDICTION. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE
  EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR THE RESALE OF
  COMMON SHARES. Reference No. Certificate No. Transfer No. Number of Shares
  RESACA EXPLOITATION, INC. COMMON STOCK ***RESTRICTED SECURITIES*** This is to
  certify that the above-named is/are the Registered Holder(s) of COMMON STOCK
  OF US$0.01 RESACA EXPLOITATION, INC. (the “Corporation”), transferable on the
  books of the Corporation by the said owner in person, or by duly authorized
  attorney, upon surrender of this Certificate properly endorsed. This
  Certificate and the shares represented hereby are subject to all the terms,
  conditions and limitations of the Certificate of Incorporation and a amendments
  thereto and supplements thereof. This Certificate is not valid until
  countersigned and registered by Registrar. WITNESS the facsimile seal of the
  Corporation and the facsimile signatures of the Corporation’s duly authorized
  officers. BATTLE OF RESACA DE LA PALMA, May 9th, 1846 Dated RESACA
  EXPLOITATION, INC. CORPORATE SEAL TEXAS CHIEF EXECUTIVE OFFICER COMPANY
  SECRETARY Countersigned by Graeme Ross, for Registrar Countersigned by Sophie
  de Freitas, for Registrar RESACA EXPLOITATION, INC.
  CORPORATE SEAL TEXAS John Lendrum Mary Lou FryExhibit
4.2

 

INVESTORS RIGHTS AGREEMENT

 

INVESTORS RIGHTS AGREEMENT (this “Agreement”), dated as
of April 5, 2010, by and among Resaca Exploitation, Inc., a Texas
corporation, with headquarters located at 1331 Lamar, Suite 1450,
Houston, Texas 77010 (the “Company”),
Cano Petroleum, Inc., a Delaware corporation, with headquarters located at
801 Cherry Street, Suite 3200, Fort Worth, Texas 76102 (“Cano”), and the
undersigned holders of the Company’s Series A Preferred Stock (each, a “Series A Holder”,
and collectively, the “Series A
Holders”). The Company, Cano and the Series A Holders are
each a “party”
and together are “parties”
to this Agreement.

 

WHEREAS:

 

A.            The Company has authorized a new
series of convertible preferred stock designated as “Series A Convertible
Preferred Stock” (together with any convertible preferred shares issued in
replacement thereof in accordance with the terms thereof, the “Series A Preferred Shares”),
the terms of which are set forth in the certificate of designations for such series
of preferred shares in the form attached hereto as Exhibit A (the “Certificate of Designations”), which Series A
Preferred Shares shall be convertible into the Company’s common stock, par
value $0.01 per share (the “Common Stock”), in accordance with the terms of the
Certificate of Designations (as converted, the “Conversion Shares”).

 

B.            In connection with that certain
Agreement and Plan of Merger by and among the Company, Resaca Acquisition Sub, Inc.,
a Delaware corporation (the “Merger Sub”), and Cano, dated September 29, 2009
(the “Merger Agreement”),
the Company has agreed, upon the consummation of the merger of Merger Sub with
and into Cano (the “Merger”),
to exchange and to issue one (1) validly issued, fully paid and
nonassessable Series A Preferred Share for each share of Series D
Convertible Preferred Stock of Cano (“Cano Series D Preferred Shares”).

 

C.            In connection with the sale and
issuance of the Cano Series D Preferred Shares, Cano and the purchasers of
Cano Series D Preferred Shares at such time entered into that certain
Securities Purchase Agreement, dated August 25, 2006 (the “Securities Purchase Agreement”)
and that certain Registration Rights Agreement, dated August 25, 2006,
with Cano (the “Registration
Rights Agreement”), both of which provided certain rights to the
holders of Cano Series D Preferred Shares.

 

D.            Since all Cano Series D
Preferred Shares are exchanged for Series A Preferred Shares as part of
the Merger, the Company, Cano and the Series A Holders desire to amend and
restate the Securities Purchase Agreement and the Registration Rights Agreement
in their entirety with this Agreement and provide the Series A Holders
with certain rights, including registration rights under the Securities Act of
1933, as amended, and the rules and regulations thereunder, or any similar
successor statute (collectively, the “1933 Act”), and applicable state securities
laws.

 

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

 

1.                                       Definitions.

 

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

 

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

 

b.             “Closing Date” shall have the meaning set
forth in the Merger Agreement.

 

F-1

 

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

 

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

 

e.             “Eligible Market” means the NYSE, The
NASDAQ Global Select Market, The NASDAQ Global Market, The NASDAQ Capital
Market, the London Stock Exchange or the AIM market of the London Stock
Exchange.

 

f.              “Excluded Securities” shall have the
meaning set forth in the Certificate of Designations.

 

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

 

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

 

i.              “Material Adverse Effect” means any
material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of the
Company, its Subsidiaries, individually or taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations hereunder.

 

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

 

k.             “Principal Market” means the NYSE Amex.

 

l.              “Purchase Price” means the sum of (i) $1,000.00
multiplied by (ii) the number of Series A Holder’s Series A
Preferred Shares for which Conversion Shares are included in a Registration
Statement referenced in the first sentence of Section 2(f).

 

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

 

n.             “Registrable Securities” means (i) Conversion
Shares issued or issuable upon conversion of the Series A Preferred
Shares, and (ii) any capital stock of the Company issued or issuable with
respect to the Conversion Shares as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise, without
regard to any limitations on conversions of the Series A Preferred Shares.

 

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

 

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

 

q.             “Required Registration Amount” means 130%
of the maximum number of Conversion Shares issued and issuable pursuant to the
Certificate of Designations, as of the trading day immediately preceding the
applicable date of determination, all subject to adjustment as provided in Section 2(e) (without
regard to any limitations on conversion of the Series A Preferred Shares).

 

F-2

 

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

 

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

 

t.              “Securities” means the Series A
Preferred Shares held by the Series A Holders and the Conversion Shares.

 

2.                                       Registration.

 

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

 

b.             Allocation
of Registrable Securities. 
The initial number of Registrable Securities included in any
Registration Statement and any increase in the number of Registrable Securities
included therein shall be allocated pro rata among the Investors based on the
number of Registrable Securities held by each Investor at the time the Registration
Statement covering such initial number of Registrable Securities or increase
thereof is declared effective by the SEC. In the event that an Investor sells
or otherwise transfers any of such Investor’s Registrable Securities, each
transferee shall be allocated a pro rata portion of the then remaining number
of Registrable Securities included in such Registration Statement for such
transferor. Any shares of Common Stock included in a Registration Statement and
which remain allocated to any Person who ceases to hold any Registrable
Securities covered by such Registration Statement shall be allocated to the
remaining Investors, pro rata based on the number of Registrable Securities
then held by such Investors which are covered by such Registration Statement.

 

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

 

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

 

e.             Sufficient
Number of Shares Registered. 
In the event the number of shares available under a Registration
Statement filed pursuant to Section 2(a) is insufficient to cover all
of the Registrable Securities required to be covered by such Registration
Statement or an Investor’s allocated portion of the Registrable Securities
pursuant to Section 2(b), the Company shall amend the applicable
Registration Statement, or file a new Registration Statement (on the short
form available therefor, if

 

F-3

 

applicable),
or both, so as to cover at least the Required Registration Amount as of the
trading day immediately preceding the date of the filing of such amendment or new
Registration Statement, in each case, as soon as practicable, but in any event
not later than fifteen (15) days after the necessity therefor arises. The
Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed “insufficient to cover
all of the Registrable Securities” if at any time the number of shares of
Common Stock available for resale under the Registration Statement is less than
the product determined by multiplying (i) the Required Registration Amount
as of such time by (ii) 0.90. The calculation set forth in the foregoing sentence
shall be made without regard to any limitations on the conversion of the Series A
Preferred Shares and such calculation shall assume that the Series A
Preferred Shares are then convertible into shares of Common Stock at the then
prevailing Conversion Rate (as defined in the Certificate of Designations).

 

f.              Effect
of Failure to File and Obtain and Maintain Effectiveness of Registration
Statement.  If (i) a
Registration Statement covering all of the Registrable Securities required to
be covered thereby and required to be filed by the Company pursuant to this
Agreement is (A) not filed with the SEC on or before the respective Filing
Deadline (a “Filing
Failure”) or (B) not declared effective by the SEC on or
before the respective Effectiveness Deadline (an “Effectiveness Failure”) or (ii) on
any day after the Effective Date sales of all of the Registrable Securities
required to be included on such Registration Statement cannot be made (other
than during an Allowable Grace Period (as defined in Section 3(r))
pursuant to such Registration Statement (including, without limitation, because
of a failure to keep such Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to such Registration
Statement, to register a sufficient number of shares of Common Stock or to
maintain a listing of the Common Stock) (a “Maintenance Failure”) then, as partial
relief for the damages to any holder by reason of any such delay in or
reduction of its ability to sell the underlying shares of Common Stock and not
as a penalty (which remedy shall not be exclusive of any other remedies
available at law or in equity), the Company shall pay to each holder of
Registrable Securities relating to such Registration Statement an amount in
cash equal to one and one-half percent (1.5%) of the aggregate Purchase Price
of such Investor’s Registrable Securities included in such Registration
Statement on each of the following dates: (i) the day of a Filing Failure;
(ii) the day of an Effectiveness Failure; (iii) the initial day of a
Maintenance Failure; (iv) on every thirtieth day after the day of a Filing
Failure and thereafter (pro rated for periods totaling less than thirty days)
until such Filing Failure is cured; (v) on every thirtieth day after the
day of an Effectiveness Failure and thereafter (pro rated for periods totaling
less than thirty days) until such Effectiveness Failure is cured; and (vi) on
every thirtieth day after the initial day of a Maintenance Failure and
thereafter (pro rated for periods totaling less than thirty days) until such
Maintenance Failure is cured. The payments to which a holder shall be entitled
pursuant to this Section 2(f) are referred to herein as “Registration Delay Payments.”
Registration Delay Payments shall be paid on the earlier of (I) the dates
set forth above and (II) the third Business Day after the event or failure
giving rise to the Registration Delay Payments is cured. In the event the
Company fails to make Registration Delay Payments in a timely manner, such
Registration Delay Payments shall bear interest at the rate of one and one-half
percent (1.5%) per month (prorated for partial months) until paid in full.
Notwithstanding anything herein to the contrary in no event shall the aggregate
amount of Registration Delay Payments (other than Registration Delay Payments
payable pursuant to events that are within the control of the Company) exceed,
in the aggregate, 10% of the aggregate Purchase Price.

 

3.                                       Related
Obligations.

 

At
such time as the Company is obligated to file a Registration Statement
with the SEC pursuant to Section 2(a), 2(d) or 2(e), the Company will
use its best efforts to effect the registration of the

 

F-4

 

Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:

 

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

 

b.             The Company shall prepare and file
with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with such Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration
Statement which are required to be filed pursuant to this Agreement (including
pursuant to this Section 3(b)) by reason of the Company filing a report on
Form 10-Q, Form 10-K or any analogous report under the Securities
Exchange Act of 1934, as amended (the “1934 Act”), the Company shall have
incorporated such report by reference into such Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC within
one (1) Business Day after the day on which the 1934 Act report is
filed which created the requirement for the Company to amend or supplement such
Registration Statement.

 

c.             The Company shall (A) permit
Legal Counsel to review and comment upon (i) a Registration Statement at
least five (5) Business Days prior to its filing with the SEC and (ii) all
amendments and supplements to all Registration Statements (except for Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, and any similar or successor reports) within a reasonable
number of days prior to their filing with the SEC, and (B) not file any
Registration Statement or amendment or supplement thereto in a form to which
Legal Counsel reasonably objects. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which
consent shall not be unreasonably withheld or delayed. The Company shall
furnish to Legal Counsel, without charge, (i) copies of any correspondence
from the SEC or the staff of the SEC to the Company or its representatives
relating to any Registration Statement, (ii) promptly after the same is

 

F-5

 

prepared and filed with the
SEC, one copy of any Registration Statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated
therein by reference, if requested by an Investor, and all exhibits and (iii) upon
the effectiveness of any Registration Statement, one copy of the prospectus
included in such Registration Statement and all amendments and supplements
thereto. The Company shall reasonably cooperate with Legal Counsel in
performing the Company’s obligations pursuant to this Section 3.

 

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

 

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

 

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

 

F-6

 

or related information, and (iii) of
the Company’s reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.

 

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

 

h.             If any Investor is deemed to be,
alleged to be or reasonably believes it may be deemed or alleged to be, an
underwriter or is required under applicable securities laws to be described in
the Registration Statement as an underwriter, at the reasonable request of such
Investor, the Company shall furnish to such Investor, on the date of the
effectiveness of the Registration Statement and thereafter from time to time on
such dates as an Investor may reasonably request (i) a letter, dated such
date, from the Company’s independent certified public accountants in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to the Investors,
and (ii) an opinion, dated as of such date, of counsel representing the
Company for purposes of such Registration Statement, in form, scope and
substance as is customarily given in an underwritten public offering, addressed
to the Investors.

 

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

 

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

 

F-7

 

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

 

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

 

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

 

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

 

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

 

o.             The Company shall make generally
available to its security holders as soon as practical, but not later than
ninety (90) days after the close of the period covered thereby, an
earnings statement (in form complying with, and in the manner provided by, the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company’s fiscal quarter next
following the effective date of the Registration Statement.

 

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

 

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

 

F-8

 

 

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

 

4.                                       Obligations
of the Investors.

 

a.                                       At least ten (10) Business
Days prior to the first anticipated filing date of a Registration Statement,
the Company shall notify each Investor in writing of the information the
Company requires from each such Investor if such Investor elects to have any of
such Investor’s Registrable Securities included in such Registration Statement.
It shall be a condition precedent to the obligations of the Company to complete
the registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities held by
it, as shall be reasonably required to effect and maintain the effectiveness of
the registration of such Registrable Securities and shall execute such
documents in connection with such registration as the Company may reasonably
request.

 

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

 

c.                                       Each Investor
agrees that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 3(g) or the first sentence
of 3(f), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until such Investor’s receipt of the copies of the
supplemented or amended prospectus contemplated by the first sentence of 3(f) or
receipt of notice that no supplement or amendment is required. Notwithstanding
anything to the contrary, the Company shall cause its transfer agent to deliver
unlegended shares of Common Stock to a transferee of an Investor in 

 

F-9

 

connection
with any sale of Registrable Securities with respect to which an Investor has
entered into a contract for sale prior to the Investor’s receipt of a notice
from the Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f) and for which the Investor has not yet settled.

 

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

 

5.                                       Expenses
of Registration.

 

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

 

6.                                       Indemnification.

 

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

 

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

 

F-10

 

the
indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person for such
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section 3(d) and
(ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld or delayed. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.

 

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

 

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

 

F-11

 

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

 

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

 

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

 

7.                                       Contribution.

 

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

 

8.                                       Reports
Under the 1934 Act.

 

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

 

a.                                       make and keep
adequate current public information with respect to the Company available, as
required by Rule 144;

 

b.                                      file with the
SEC in a timely manner all reports and other documents required of the Company
under the 1933 Act and the 1934 Act so long as the Company remains subject to
such requirements (it being understood that nothing herein shall limit the
Company’s obligations under Section 10(a)) and the filing of such reports
and other documents is required for the applicable provisions of Rule 144;
and

 

F-12

 

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

 

9.                                       Assignment
of Investor’s Rights.

 

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

 

10.                                 Additional
Covenants.

 

a.                                       Reporting
Status.  Until the date on which the Series A
Holders shall have sold all the Conversion Shares and none of the Series A
Preferred Shares are outstanding (the “Reporting Period”), the Company shall timely
file all reports required to be filed with the SEC pursuant to the 1934 Act,
and the Company shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would no longer require or otherwise permit such
termination. From the time Form S-3 is available to the Company for the
registration of the Conversion Shares, the Company shall take all actions
necessary to maintain its eligibility to register the Conversion Shares for
resale by the Series A Holders on Form S-3 and at all times the
Company shall conduct its business in accordance with applicable law.

 

b.                                      Financial
Information.  The Company
agrees to send the following to each Investor during the Reporting Period (i) unless
the following are filed with the SEC through EDGAR and are available to the
public through the EDGAR system, within one (1) Business Day after the
filing thereof with the SEC, a copy of its Annual Reports and Quarterly Reports
on Form 10-K or 10-Q, any interim reports or any consolidated balance
sheets, income statements, shareholders’ equity statements and/or cash flow
statements for any period other than annual, any Current Reports on Form 8-K
and any registration statements (other than on Form S-8) or amendments
filed pursuant to the 1933 Act and (ii) copies of any notices and other
information made available or given to the shareholders of the Company
generally, contemporaneously with the making available or giving thereof to the
shareholders.

 

c.                                       Listing.  The Company shall promptly secure the listing
of all of the Registrable Securities upon each national securities exchange and
automated quotation system, if any, upon which the Common Stock is then listed
(subject to official notice of issuance). The Company shall maintain the Common
Stock’s authorization for quotation on the Principal Market or any Eligible
Market. Neither the Company nor any of its Subsidiaries shall take any action
which would be reasonably expected to result in the delisting or suspension of
the Common Stock on the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 10(c).

 

F-13

 

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

 

e.                                       Disclosure
of Transactions and Other Material Information.  On or before 8:30 a.m., New York City
time, on the third Business Day following the date of this Agreement, the
Company shall issue a press release and file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Agreement in the
form required by the 1934 Act and attaching the Agreement (including, without
limitation, all schedules to this Agreement) as an exhibit to such filing
(including all attachments, the “8-K Filing”). From and after the filing of
the 8-K Filing with the SEC, no Investor shall be in possession of any
material, nonpublic information received from the Company, any of its
Subsidiaries or any of its respective officers, directors, employees or agents,
that is not disclosed in the 8-K Filing. The Company shall not, and shall cause
each of its Subsidiaries and its and each of their respective officers,
directors, employees and agents, not to, provide any Investor with any material,
nonpublic information regarding the Company or any of its Subsidiaries from and
after the filing of the 8-K Filing with the SEC without the express written
consent of such Investor or as may be required under the terms of this
Agreement. If an Investor has, or believes it has, received any such material,
nonpublic information regarding the Company or any of its Subsidiaries directly
from the Company, any of its Subsidiaries, any of their affiliates, officers,
directors or any other Person acting on their behalf, it shall provide the
Company with written notice thereof. The Company shall, within five (5) Trading
Days (as defined in the Certificate of Designations) of receipt of such notice,
make public disclosure of such material, nonpublic information. In the event of
a breach of the foregoing covenant by the Company, any of its Subsidiaries, or
any of its or their respective officers, directors, employees and agents, in
addition to any other remedy provided herein, an Investor shall have the right to
make a public disclosure, in the form of a press release, public advertisement
or otherwise, of such material, nonpublic information without the prior
approval by the Company, its Subsidiaries, or any of its or their respective
officers, directors, employees or agents. No Investor shall have any liability
to the Company, its Subsidiaries, or any of its or their respective officers,
directors, employees, shareholders or agents for any such disclosure. Subject
to the foregoing, neither the Company, its Subsidiaries nor any Investor shall
issue any press releases or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of any Investor, to make any press release
or other public disclosure with respect to such transactions (i) in
substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as
is required by applicable law and regulations (provided that in the case of
clause (i) each Investor shall be consulted by the Company in
connection with any such press release or other public disclosure prior to its
release). Without the prior written consent of any applicable Investor, neither
the Company nor any of its Subsidiaries or affiliates shall disclose the name
of such Investor in any filing, announcement, release or otherwise, unless such
disclosure is required by law, regulation or the Principal Market.

 

f.                                         Additional
Registration Statements. 
Except for registration statements filed in connection with the Merger
or the Offering (as defined below), until the Effective Date, the Company shall
not file a registration statement under the 1933 Act relating to
securities that are not the Securities.

 

g.                                      Corporate
Existence.  So long as
any Series A Holder beneficially owns any Series A Preferred Shares,
the Company shall not be party to any Fundamental Transaction (as defined in
the Certificate 

 

F-14

 

of
Designations) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Certificate of
Designations.

 

h.                                      Reservation
of Shares.  The Company
shall take all action necessary to at all times have authorized, and reserved
for the purpose of issuance, no less than 130% of the maximum number of shares
of Common Stock issuable upon conversion of the Series A Preferred Shares
(assuming for purposes hereof, that the Series A Preferred Shares are
convertible at the Conversion Price and without taking into account any
limitations on the conversion of the Series A Preferred Shares set forth
in the Certificate of Designations).

 

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

 

j.                                          Additional
Issuances of Securities.

 

(i)                                     For purposes of
this Section 10(j), the following definitions shall apply.

 

(1)                                  “Convertible Securities”
means any stock or securities (other than Options) convertible into or
exercisable or exchangeable for shares of Common Stock.

 

(2)                                  “Options” means any
rights, warrants or options to subscribe for or purchase shares of Common Stock
or Convertible Securities.

 

(3)                                  “Common Stock Equivalents”
means, collectively, Options and Convertible Securities.

 

(ii)                                  Until no Series A
Preferred Shares remain outstanding, the Company will not, directly or indirectly,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other disposition of) any
of its or its Subsidiaries’ equity or equity equivalent securities, including
without limitation any debt, preferred stock or other instrument or security
that is, at any time during its life and under any circumstances, convertible
into or exchangeable or exercisable for shares of Common Stock or Common Stock
Equivalents (any such offer, sale, grant, disposition or announcement being
referred to as a “Subsequent
Placement”) unless the Company shall have first complied with
this Section 10(j)(ii).

 

(1)                                  The Company shall deliver to
each Series A Holder a written notice (the “Offer Notice”) of any proposed or
intended issuance or sale or exchange (the “Offer”) of the securities being offered
(the “Offered Securities”)
in a Subsequent Placement, which Offer Notice shall (w) identify and
describe the Offered Securities, (x) describe the price and other terms
upon which they are to be issued, sold or exchanged, and the number or amount
of the Offered Securities to be issued, sold or exchanged, (y) identify
the persons or entities (if known) to which or with which the Offered
Securities are to be offered, issued, sold or exchanged and (z) offer to
issue and sell to or exchange with such Series A Holders 30% of the
Offered Securities allocated among such Series A Holders (a) based on
such Series A Holder’s pro rata portion of the aggregate number of Series A
Preferred Shares held as of the date of such Offer Notice (the “Basic Amount”), and (b) with
respect to each Series A Holder that elects to purchase its Basic Amount,
any additional portion of the Offered Securities attributable to the Basic
Amounts of other Series A Holders as such Series A Holder shall
indicate it will purchase or acquire should the other Series A Holders
subscribe for less than their Basic Amounts (the “Undersubscription Amount”), which
process shall be repeated until the Series A Holders shall have an
opportunity to subscribe for any remaining Undersubscription Amount.

 

(2)                                  To accept an Offer, in whole
or in part, such Series A Holder must deliver a written notice to the
Company prior to the end of the third (3rd) Business Day after such Series A Holder’s
receipt of the Offer Notice (the “Offer Period”), setting forth the portion of
such 

 

F-15

 

Series A
Holder’s Basic Amount that such Series A Holder elects to purchase and, if
such Series A Holder shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Series A Holder elects to
purchase (in either case, the “Notice of Acceptance”). If such Series A Holder
does not deliver the Notice of Acceptance prior to the end of the Offer Period,
then such Series A Holder shall be deemed to have waived such Series A
Holder’s rights to purchase any Offered Securities in the Subsequent Placement
which is the subject of the Offer Notice. If the Basic Amounts subscribed for
by all Series A Holders are less than the total of all of the Basic
Amounts, then each Series A Holder who has set forth an Undersubscription
Amount in its Notice of Acceptance shall be entitled to purchase, in addition
to the Basic Amounts subscribed for, the Undersubscription Amount it has
subscribed for; provided, however, that if the Undersubscription
Amounts subscribed for exceed the difference between the total of all the Basic
Amounts and the Basic Amounts subscribed for (the “Available Undersubscription Amount”),
each Series A Holder who has subscribed for any Undersubscription Amount
shall be entitled to purchase only that portion of the Available
Undersubscription Amount as the Basic Amount of such Series A Holder bears
to the total Basic Amounts of all Series A Holders that have subscribed
for Undersubscription Amounts, subject to rounding by the Company to the extent
it deems reasonably necessary. Notwithstanding the foregoing, if the Company
desires to modify or amend the terms and conditions of the Offer prior to the
expiration of the Offer Period, the Company may deliver to the Series A
Holders a new Offer Notice and the Offer Period shall expire on the third (3rd)
Business Day after such Series A Holder’s receipt of such new Offer Notice.

 

(3)                                  The Company shall have one
hundred twenty (120) days from the expiration of the Offer Period above (i) to
offer, issue, sell or exchange all or any part of such Offered Securities as to
which a Notice of Acceptance has not been given by the Series A Holders
(the “Refused Securities”)
pursuant to a definitive agreement(s) (the “Subsequent Placement Agreement”), but
only to the offerees described in the Offer Notice (if so described therein)
and only upon terms and conditions (including, without limitation, unit prices
and interest rates) that are not more favorable to the acquiring person or
persons or less favorable to the Company than those set forth in the Offer
Notice and (ii) to publicly announce (a) the execution of such
Subsequent Placement Agreement, and (b) either (x) the consummation
of the transactions contemplated by such Subsequent Placement Agreement or (y) the
termination of such Subsequent Placement Agreement, which shall be filed with
the SEC on a Current Report on Form 8-K with such Subsequent Placement
Agreement and any documents contemplated therein filed as exhibits thereto.

 

(4)                                  In the event the Company
shall propose to sell less than all the Refused Securities (any such sale to be
in the manner and on the terms specified in Section 10(j)(ii)(3) above),
then each Series A Holder may, at its sole option and in its sole
discretion, reduce the number or amount of the Offered Securities specified in
its Notice of Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that such Series A Holder elected to
purchase pursuant to Section 10(j)(ii)(2) above multiplied by a
fraction, (i) the numerator of which shall be the number or amount of
Offered Securities the Company actually proposes to issue, sell or exchange
(including Offered Securities to be issued or sold to Series A Holders
pursuant to Section 10(j)(ii)(3) above prior to such reduction) and (ii) the
denominator of which shall be the original amount of the Offered Securities. In
the event that any Series A Holder so elects to reduce the number or
amount of Offered Securities specified in its Notice of Acceptance, the Company
may not issue, sell or exchange more than the reduced number or amount of the
Offered Securities unless and until such securities have again been offered to
the Series A Holders in accordance with Section 10(j)(ii)(1) above.

 

F-16

 

(5)                                  Upon the
closing of the issuance, sale or exchange of all or less than all of the
Refused Securities, the Series A Holders shall acquire from the Company,
and the Company shall issue to the Series A Holders, the number or amount
of Offered Securities specified in the Notices of Acceptance, as reduced
pursuant to Section 10(j)(ii)(3) above if the Series A Holders
have so elected, upon the terms and conditions specified in the Offer. The
purchase by the Series A Holders of any Offered Securities is subject in
all cases to the preparation, execution and delivery by the Company and the Series A
Holders of a purchase agreement relating to such Offered Securities reasonably
satisfactory in form and substance to the Series A Holders and their
respective counsel.

 

(6)                                  Any Offered
Securities not acquired by the Series A Holders or other persons in
accordance with Section 10(j)(ii)(3) above may not be issued, sold or
exchanged until they are again offered to the Series A Holders under the
procedures specified in this Agreement.

 

(7)                                  Except with
respect to the Offering, the Company and the Series A Holders agree that
if any Series A Holder elects to participate in the Offer, (x) neither
the Subsequent Placement Agreement with respect to such Offer nor any other
transaction documents related thereto (collectively, the “Subsequent Placement Documents”)
shall include any term or provisions whereby any Series A Holder shall be
required to agree to any restrictions in trading as to any securities of the
Company owned by such Series A Holder prior to such Subsequent Placement,
and (y) any registration rights set forth in such Subsequent Placement
Documents shall be similar in all material respects to the registration rights
contained in this Agreement.

 

(8)                                  Notwithstanding
anything to the contrary in this Section 10(j) and unless otherwise
agreed to by the Series A Holders, the Company shall either confirm in
writing to the Series A Holders that the transaction with respect to the
Subsequent Placement has been abandoned or shall publicly disclose its
intention to issue the Offered Securities, in either case in such a manner such
that the Series A Holders will not be in possession of material non-public
information, by the one hundred twentieth (120th) day following expiration of
the Offer Period. If by the one hundred twentieth (120th) day following
expiration of the Offer Period no public disclosure regarding a transaction
with respect to the Offered Securities has been made, and no notice regarding
the abandonment of such transaction has been received by the Series A
Holders, such transaction shall be deemed to have been abandoned and the Series A
Holders shall not be deemed to be in possession of any material, non-public
information with respect to the Company. Should the Company decide to pursue
such transaction with respect to the Offered Securities, the Company shall
provide each Series A Holder with another Offer Notice and each Series A
Holder will again have the right of participation set forth in this Section 10(j)(ii).

 

(9)                                 Notwithstanding
anything to the contrary in this Section 10(j), the restrictions contained
in subsections (ii) of this Section 10(j) shall not apply in connection with the issuance
of any Excluded Securities or the offering of shares of Common Stock pursuant
to that certain Registration Statement on Form S-1 (Registration No. 333-164551),
including all amendments thereto, as filed with the SEC (the “Offering”), regardless of whether the
Offering occurs before, simultaneous with or after the Merger.

 

(10)                            In the event
the Company has made a good faith determination that any matters relating to an
Offer Notice required to be provided to any Series A Holder pursuant to
this Section 10(j) constitute material non-public information, prior
to providing such Offer Notice, the Company shall promptly inquire (either
orally or in writing) to each Series A Holder whether such Series A
Holder wants to receive any material non-public information (the “Material Event Notice”).
To receive delivery of such Offer Notice and participate in a

 

F-17

 

Subsequent Placement which is the subject of such Offer Notice, each Series A
Holder must deliver notice (either orally or in writing) to the Company prior
to the end of the first (1st) Business Day after such Series A Holder’s receipt of the
Material Event Notice (the “Material Event Disclosure Period”) authorizing the
delivery of material non-public information to such Series A Holder (the “Material Event Notice Acceptance”).
If a Material Event Notice Acceptance is not received by the Company within the
Material Event Disclosure Period, then such Series A Holder shall be
deemed to have waived such Series A Holder’s rights to receive such Offer
Notice which is the subject of the Material Event Notice and purchase any
Offered Securities in the Subsequent Placement which is the subject of such
Offer Notice and the Company shall be relieved of any obligation imposed by
this Section 10(j) to deliver such Offer Notice and sell any such
Offered Securities to such Series A Holder.

 

k.                                       Withholding
Taxes.  On each Dividend Date (as
defined in the Certificate of Designations), if the Company does not have
current or accumulated “earnings and profits” within the meaning of
Sections 301 and 312 of the Internal Revenue Code of 1986, as amended,
through such Dividend Date, the Company shall not withhold any amount of the
applicable Dividend (as defined in the Certificate of Designations) in respect
of U.S. federal income tax. On or prior to any such Dividend Date, the Company
shall deliver a transmittal letter to the Series A Holder or the Series A
Holder’s prime broker indicating whether the Company believes it must withhold
any amount of such Dividend, whether the Company has any “earnings or profits”
and the calculations, in reasonable detail, supporting such calculations.

 

l.                                          [Intentionally omitted]

 

m.                                    Trading
in Common Stock.  For so long
as such Series A Holder owns any Securities, such Series A Holder
shall not maintain a Net Short Position. For purposes of this Section, a “Net Short Position”
by a person means a position whereby such person has executed one or more sales
of Common Stock that is marked as a short sale and that is executed at a time
when such Series A Holder has no equivalent offsetting long position in
the Common Stock or contract for the foregoing. For purposes of determining
whether a Series A Holder has an equivalent offsetting long position in
the Common Stock, all Common Stock (i) that is owned by such Series A
Holder, (ii) that may be issued pursuant to the terms of the Certificate
of Designations to the Series A Holder or (iii) that would be
issuable upon conversion or exercise in full of all securities of the Series A
Holder (including the Securities) then held by such Series A Holder
(assuming that such securities were then fully convertible or exercisable,
notwithstanding any provisions to the contrary, and giving effect to any
conversion or exercise price adjustments that would take effect given only the
passage of time) shall be deemed to be held long by such Series A Holder.
Without limiting the foregoing, the Series A Holders may engage in hedging
activities at various times during the period following the public announcement
of the execution of this Agreement as provided in Section 10(e), and
during the period that any Securities are outstanding.

 

n.                                      Transfer
or Resale.  Each Series A
Holder understands that except as provided in this Agreement: (i) the
Securities have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Series A
Holder shall have delivered to the Company an opinion of counsel, in a
generally acceptable form, to the effect that such Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, or (C) such Series A Holder
provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 or Rule 144A
promulgated under the 1933 Act; (ii) any sale of the Securities made in
reliance on Rule 144 may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of the Securities
under circumstances in which the seller (or the Person) through whom the sale
is made) may be deemed to be an underwriter (as that term is defined in the
1933 Act) may require compliance with 

 

F-18

 

some other exemption under the 1933 Act or
the rules and regulations of the SEC thereunder; and (iii) neither
the Company nor any other Person is under any obligation to register the
Securities under the 1933 Act or any state securities laws or to comply with
the terms and conditions of any exemption thereunder. The Securities may be
pledged in connection with a bona fide margin account or other loan or
financing arrangement secured by the Securities and such pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Series A Holder effecting a pledge of Securities shall
be required to provide the Company with any notice thereof or otherwise make
any delivery to the Company pursuant to this Agreement, including, without
limitation, this Section 10(n).

 

o.                                      Legends.  Each Series A Holder understands that
the certificates or other instruments representing the Series A Preferred
Shares and the stock certificates representing the Conversion Shares, except as
set forth below, shall bear any legend as required by the “blue sky” laws of
any state and a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock certificates):

 

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

 

The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Series A Preferred
Shares upon which it is stamped, if, unless otherwise required by state
securities laws, (i) such Series A Preferred Shares are registered
for resale under the 1933 Act, (ii) in connection with a sale, assignment
or other transfer, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that such sale, assignment or
transfer of the Series A Preferred Shares may be made without registration
under the applicable requirements of the 1933 Act, or (iii) such holder
provides the Company with reasonable assurance that the Series A Preferred
Shares can be sold, assigned or transferred pursuant to Rule 144(b).

 

11.                                 Register;
Transfer Agent Instructions.

 

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

 

F-19

 

b.                                      Transfer
Agent Instructions.  The Company
shall issue irrevocable instructions to its transfer agent (the “Transfer Agent”),
and any subsequent transfer agent, to issue certificates or credit shares to
the applicable balance accounts at the Transfer Agent, registered in the name
of each Series A Holder or its respective nominee(s), for the Series A
Preferred Shares issued at the Closing and for the Conversion Shares in such
amounts as specified from time to time by each Series A Holder to the
Company upon conversion of the Series A Preferred Shares in the form of Exhibit D attached hereto (the “Irrevocable Transfer Agent
Instructions”). The Company warrants that no instruction other
than the Irrevocable Transfer Agent Instructions referred to in this Section 11(b),
and stop transfer instructions to give effect to Section 10(o) hereof,
will be given by the Company to its transfer agent with respect to the
Securities, and that the Securities shall otherwise be freely transferable on
the books and records of the Company, as applicable, and to the extent provided
in this Agreement. If a Series A Holder effects a sale, assignment or
transfer of the Securities in accordance with Section 10(n), the Company
shall permit the transfer and shall promptly instruct its transfer agent to
issue one or more certificates or credit shares to the applicable balance
accounts at the Transfer Agent in such name and in such denominations as
specified by such Series A Holder to effect such sale, transfer or
assignment. In the event that such sale, assignment or transfer involves
Conversion Shares sold, assigned or transferred pursuant to an effective
registration statement with prospectus delivery (unless an exemption from the
prospectus delivery requirements is available), or pursuant to Rule 144,
the transfer agent shall issue such Securities to the Series A Holder,
assignee or transferee, as the case may be, without any restrictive legend.

 

c.                                       Breach.  The Company acknowledges that a breach by it
of its obligations under this Section 11 will cause irreparable harm to a Series A
Holder and that the remedy at law for a breach of its obligations under this Section 11
will be inadequate. In addition, the Company agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 11,
that a Series A Holder shall be entitled, in addition to all other
available remedies, to seek an order and/or injunction restraining any breach
and requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.

 

d.                                      Additional
Relief.  If the Company shall fail for
any reason or for no reason to issue to such holder unlegended certificates
within three (3) Business Days of receipt of documents necessary for the
removal of legend set forth above (the “Deadline Date”), then, in addition to all
other remedies available to the holder, if on or after the Trading Day (as
defined in the Certificate of Designations) immediately following such three (3) Business
Day period, the holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the holder of
shares of Common Stock that the holder anticipated receiving from the Company
(a “Buy-In”),
then the Company shall, within three (3) Business Days after the holder’s
request and in the holder’s discretion, either (i) pay cash to the holder
in an amount equal to the holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”),
at which point the Company’s obligation to deliver such certificate (and to
issue such shares of Common Stock) shall terminate, or (ii) promptly honor
its obligation to deliver to the holder a certificate or certificates
representing such shares of Common Stock and pay cash to the holder in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A) such
number of shares of Common Stock, times (B) the Closing Bid Price on the
Deadline Date. “Closing
Bid Price” means, for any security as of any date, the last
closing price for such security on the Principal Market, as reported by
Bloomberg (as defined in the Certificate of Designations), or, if the Principal
Market begins to operate on an extended hours basis and does not designate the
closing bid price then the last bid price of such security prior to 4:00:00 p.m.,
New York Time, as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last
closing price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing price of such security in the
over-the-counter market on the electronic bulletin board for such security as

 

F-20

 

reported by Bloomberg, or, if no closing bid
price is reported for such security by Bloomberg, the average of the bid prices
of any market makers for such security as reported in the “pink sheets” by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the
Closing Bid Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
holder. If the Company and the holder are unable to agree upon the fair market
value of such security, then such dispute shall be resolved pursuant to Section 2(d)(iii) of
the Certificate of Designations. All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination or other
similar transaction during the applicable calculation period.

 

12.                                 Amendment
and Restatement of Securities Purchase Agreement and Registration Rights
Agreement.  The Company,
Cano and the Series A Holders agree that the Securities Purchase Agreement
and the Registration Rights Agreement are hereby amended and restated in their
entirety by this Agreement and upon execution of this Agreement (i) the
Securities Purchase Agreement and the Registration Rights Agreement shall be of
no further force and effect, and (ii) all rights and obligations of Cano
and the Series A Holders under the Securities Purchase Agreement and the
Registration Rights Agreement shall be superseded by this Agreement; provided,
however, that the Series A Holders shall retain any rights and remedies
that they have under the terms of the Securities Purchase Agreement or the
Registration Rights Agreement, as applicable, as a direct result of any breach
of the terms of the Securities Purchase Agreement or the Registration Rights
Agreement by Cano occurring prior to the Closing Date, including rights to
indemnification thereunder.

 

13.                                 Miscellaneous.

 

a.                                       A Person is
deemed to be a holder of Registrable Securities whenever such Person owns or is
deemed to own of record such Registrable Securities. If the Company receives
conflicting instructions, notices or elections from two or more Persons with
respect to the same Registrable Securities, the Company shall act upon the
basis of instructions, notice or election received from the such record owner
of such Registrable Securities.

 

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

 

If to the Company or Cano:

 

Resaca Exploitation, Inc.

1331 Lamar

Suite 1450

Houston, Texas 77010

Telephone: (713) 650-1246

Facsimile: (713 655-1711

Attention: General Counsel

 

F-21

 

With a copy to:

 

Haynes and Boone, LLP

1221 McKinney

Suite 2100

Houston, Texas 77010

Telephone: (713) 547-2000

Facsimile: (713) 547-2600

Attention: Bryce D. Linsenmayer, Esq.

 

If to a Series A Holder or Investor, to its address and facsimile
number set forth on the Exhibit E
attached hereto, with copies to such Series A Holder’s or Investor’s
representatives as set forth on the Exhibit E,
or to such other address and/or facsimile number and/or to the attention of
such other Person as the recipient party has specified by written notice given
to each other party pursuant to this Section. If to the Legal Counsel, to its
address and facsimile number as specified by written notice given to the Company
by the Required Holders upon designation of the Legal Counsel. Written
confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender’s facsimile machine containing the time, date,
recipient facsimile number and an image of the first page of such
transmission or (C) provided by a courier or overnight courier service
shall be rebuttable evidence of personal service, receipt by facsimile or
receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

 

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

 

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

 

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

 

F-22

 

supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

o.                                      Provisions of
this Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Required
Holders. Any amendment or waiver effected in accordance with this Section 13(o) shall
be binding upon each Investor and holder of Registrable Securities, Cano and
the Company. No such amendment shall be effective to the extent that it applies
to less than all of the holders of the Registrable Securities then outstanding.
No consideration shall be offered or paid to any Person to amend or consent to
a waiver or modification of any provision of any of this Agreement unless the
same consideration also is offered to all of the parties to this Agreement.

 

p.                                      The parties agree that this Agreement shall automatically be effective on
the Closing Date and not before such date. The parties agree that they shall
have no rights or obligations under this Agreement until the Closing Date. If
the Merger does not occur, this Agreement shall immediately and automatically be
null and void and of no force and effect.

 

[Signature page follows]

 

F-23

 

 

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

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  RESACA EXPLOITATION, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John J. Lendrum, III

  
	
   

  	
   

  	
  John J. Lendrum, III

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CANO:

  
	
   

  	
   

  
	
   

  	
  CANO PETROLEUM INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Phillip B. Feiner

  
	
   

  	
   

  	
  Phillip B. Feiner

  
	
   

  	
   

  	
  Vice President and General Counsel

  

 

F-24

 

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

 

	
   

  	
  SERIES A HOLDERS:

  
	
   

  	
   

  
	
   

  	
  D.E. LAMINAR PORTFOLIOS, L.L.C.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ W. Todd Huskinson

  
	
   

  	
   

  	
  Name: W. Todd Huskinson

  
	
   

  	
   

  	
  Title: Authorized Signatory

  

 

F-25

 

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

 

	
   

  	
  SERIES A
  HOLDERS:

  
	
   

  	
   

  
	
   

  	
  KELLOGG
  CAPITAL MARKETS LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Nicholas Cappelleri

  
	
   

  	
  Name:

  	
  Nicholas
  Cappelleri

  
	
   

  	
  Title:

  	
  Director
  - Finance & Operation

  

 

F-26

 

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

 

	
   

  	
  SERIES A HOLDERS:

  
	
   

  	
   

  
	
   

  	
  Radcliffe SPC, Ltd. for and on behalf of the Class A
  Segregated Portfolio 

  
	
   

  	
  By: Radcliffe Capital Management, L.P.

  
	
   

  	
  By: RGC Management Company, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Chris Hinkel

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Chris Hinkel

  
	
   

  	
   

  	
  Title: Managing Director

  

 

F-27

 

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

 

	
   

  	
  SERIES A HOLDERS:

  
	
   

  	
  Investcorp Interlachen Multi-Strategy Master Fund
  Limited

  
	
   

  	
  By: Interlachen Capital Group LP, Authorized
  Signatory

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gregg T. Colburn

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Gregg T. Colburn

  
	
   

  	
   

  	
  Title:

  	
  Authorized Signatory

  

 

 

F-28

 

EXHIBIT A

 

CERTIFICATE OF DESIGNATIONS, PREFERENCES

AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK

OF

RESACA EXPLOITATION, INC.

 

Exhibit
4.3 of this joint proxy statement / prospectus.

 

F-29

 

EXHIBIT B

 

SELLING SHAREHOLDERS

 

The shares of Common Stock
being offered by the Selling Shareholders are those issuable to the Selling
Shareholders upon conversion of the convertible preferred shares. For
additional information regarding the issuance of those convertible preferred
shares, see “Issuance of Series A Preferred Stock” above. We are registering
the shares of Common Stock in order to permit the selling shareholders to offer
the shares for resale from time to time. Except for [disclose shareholder relationships] and the ownership of
certain shares of Common Stock and the convertible preferred shares, the
selling shareholders have not had any material relationship with us within the
past three years.

 

The table below lists the
Selling Shareholders and other information regarding the beneficial ownership
of the shares of Common Stock by each of the Selling Shareholders. The second
column lists the number of shares of Common Stock beneficially owned by each
Selling Shareholder, based on its ownership of the convertible preferred
shares, as of                  ,
2010, assuming conversion of all convertible preferred shares held by the
selling shareholders on that date without regard to any limitations on
conversions.

 

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

 

In accordance with the terms
of an investors rights agreement with the selling shareholders, this prospectus
generally covers the resale of at least 130% of the maximum number of shares of
Common Stock issuable upon conversion of the convertible preferred shares as of
the [first trading day TBD].
Because the conversion price of the convertible preferred shares may be
adjusted, the number of shares that will actually be issued may be more or less
than the number of shares being offered by this prospectus. The fourth column
assumes the sale of all of the shares offered by the Selling Shareholders
pursuant to this prospectus.

 

Under the terms of the
certificate of designations, a Selling Shareholder may not convert the
preferred shares to the extent such conversion would cause such Selling
Shareholder, together with its affiliates, to beneficially own a number of
shares of Common Stock which would exceed a percentage specified by the Selling
Shareholder of our then outstanding shares of Common Stock following such
conversion, excluding for purposes of such determination shares of Common Stock
issuable upon conversion of the convertible preferred shares which have not
been converted. The number of shares in the second column does not reflect this
limitation. The Selling Shareholders may sell all, some or none of their shares
in this offering. See “Plan of Distribution.”

 

	
  Name of Selling Shareholder

  	
   

  	
  Number of

  Ordinary Shares

  Owned Prior

  to Offering

  	
   

  	
  Maximum
  Number

  of Ordinary Shares

  to be Sold

  Pursuant to

  this Prospectus

  	
   

  	
  Number of

  Ordinary Shares

  Owned After

  Offering

  	
   

  
	
  [Series A Holder]

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  [Other Series A
  Holders]

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

PLAN OF DISTRIBUTION

 

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

 

F-30

 

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

 

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

 

·                  in the
over-the-counter market;

 

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

 

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

 

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

 

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

 

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

 

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

 

·                  privately
negotiated transactions;

 

·                  short sales;

 

·                  sales pursuant
to Rule 144;

 

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

 

·                  a combination
of any such methods of sale; and

 

·                  any other
method permitted pursuant to applicable law.

 

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

 

The selling shareholders may
pledge or grant a security interest in some or all of the preferred shares or
shares of Common Stock owned by them and, if they default in the performance of
their secured obligations, the pledgees or secured parties may offer and sell
the shares of Common Stock from time to time pursuant to this prospectus or any
amendment to this prospectus under

 

F-31

 

Rule 424(b)(3) or other applicable
provision of the Securities Act of 1933, as amended (the “Securities Act”),
amending, if necessary, the list of selling shareholders to include, pursuant
to prospectus amendment or prospectus supplement, the pledgee, transferee or
other successors in interest as selling shareholders under this prospectus. The
selling shareholders also may transfer and donate the shares of Common Stock in
other circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.

 

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

 

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

 

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

 

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

 

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

 

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

 

F-32

 

Exhibit C

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

 

[Company Transfer Agent]

[Address]

Attention:

 

Re:   Resaca
Exploitation, Inc.

 

Ladies and Gentlemen:

 

[We are][I am] counsel to
Resaca Exploitation, Inc., a Texas corporation (the “Company”), and have
represented the Company in connection with that certain Agreement and Plan of
Merger (the “Merger
Agreement”) entered into by and among the Company, Resaca
Acquisition Sub, Inc., a Delaware corporation (“Merger Sub”), and
Cano Petroleum, Inc., a Delaware corporation (“Cano”), pursuant to
which the Company agreed to issue to the holders (the “Holders”) of Series D
Convertible Preferred Stock of Cano (the “Cano Preferred Stock”) one (1) validly
issued, fully paid nonassessable share of Series A Convertible Preferred
Stock, par value $0.01 per share, of the Company for each share of Cano
Preferred Stock. The Company also has agreed entered into an Investors Rights
Agreement with the Holders (the “Investors Rights Agreement”) pursuant to
which the Company agreed, among other things, to register the Registrable
Securities (as defined therein) under the Securities Act of 1933, as amended
(the “1933 Act”).
In connection with the Company’s obligations under the Investors Rights
Agreement, on                   ,
2010, the Company filed a Registration Statement on Form S-1 (File No. 333-             )
(the “Registration
Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the
Registrable Securities which names each of the Holders as a selling shareholder
thereunder.

 

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

 

Subject to the specific
prohibitions contained in the Investors Rights Agreement regarding the
inability to use the Registration Statement under specific circumstances (the “Registration Statement Limitations”),
this letter shall serve as our standing instruction to you that the shares of
Common Stock are freely transferable by the Holders pursuant to the
Registration Statement provided the prospectus delivery requirements, if any,
are complied with.

 

Subject to the Registration
Statement Limitations, you need not require further letters from us to effect
any future legend-free issuance or reissuance of shares of Common Stock to the
Holders as contemplated by the Company’s Irrevocable Transfer Agent
Instructions dated                        
, 20        . This letter shall
serve as our standing opinion with regard to this matter.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  [ISSUER’S COUNSEL]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  CC: [LIST NAMES OF HOLDERS]

  	
   

  	
   

  

 

F-33

 

EXHIBIT D

IRREVOCABLE TRANSFER INSTRUCTIONS

RESACA EXPLOITATION, INC.

 

                        ,
20

 

[Company Transfer Agent]

[Address]

 

Ladies and Gentlemen:

 

In connection with the
merger of a wholly-owned subsidiary of Resaca Exploitation, Inc., a Texas
corporation (the “Company”),
with and into Cano Petroleum, Inc., a Delaware corporation, the investors
named on the Schedule of Holders attached hereto as Exhibit I (collectively, the “Holders”) received Series A
Convertible Preferred Stock, par value $0.01 per share, (the “Series A Preferred Shares”)
of the Company, which Series A Preferred Shares are convertible into the
Company’s common stock, par value $0.01 per share (the “Common Stock”), in
accordance with the terms of the Certificate of Designations of the Series A
Preferred Shares.

 

This letter shall serve as
our authorization and direction to you (provided that you are the transfer
agent of the Company at such time), subject to any stop transfer instructions
that we may issue to you from time to time, if at all, to issue shares of
Common Stock upon conversion of the Series A Preferred Shares (the “Conversion Shares”)
to or upon the order of a Holder from time to time upon delivery to you of a
properly completed and duly executed Conversion Notice, in the form attached
hereto as Exhibit II, which
has been acknowledged by the Company as indicated by the signature of a duly
authorized officer of the Company thereon.

 

You acknowledge and agree
that so long as you have previously received (a) written confirmation from
the General Counsel of the Company (or its outside legal counsel) that either (i) a
registration statement covering resales of the Conversion Shares has been
declared effective by the Securities and Exchange Commission (the “SEC”) under the
Securities Act of 1933, as amended (the “1933 Act”) and you have not received a notice
from the Company that resale of the Conversion Shares under a registration
statement are not permitted at that time (a “No Registered Resale Notice”) pursuant
to the terms of the Investors Rights Agreement dated as of             , 2010 by and among the Company
and the Holders, or (ii) that sales of the Conversion Shares may be made
in conformity with Rule 144 under the 1933 Act, and (b) if
applicable, a copy of such registration statement and you have not received a
No Registered Resale Notice, then, within three (3) business days after your
receipt of a notice of transfer or a Conversion Notice, you shall issue the
certificates representing the Conversion Shares and such certificates shall not
bear any legend restricting transfer of the Conversion Shares thereby and
should not be subject to any stop-transfer restriction; provided, however,
that if such Conversion Shares are not registered for resale under the 1933 Act
or able to be sold under Rule 144, then the certificates for such
Conversion Shares shall bear the following legend:

 

THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED

 

F-34

 

IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.

 

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

 

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

 

	
   

  	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  RESACA EXPLOITATION, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Phillip B. Feiner 

  
	
   

  	
   

  	
   

  	
  Corporate Secretary, Vice President and General Counsel

  
	
   

  	
   

  	
   

  
	
  THE FOREGOING INSTRUCTIONS ARE ACKNOWLEDGED AND
  AGREED TO

  this          day of                         ,
  2010

  [Company Transfer agent]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  

 

Enclosures

cc:    [Legal
Counsel]

 

F-35

 

EXHIBIT I

SCHEDULE OF SERIES A HOLDERS

 

	
  Name of Series A Holder

  	
   

  	
  Series A
  Holder Address and Facsimile Number

  
	
   

  	
   

  	
   

  
	
  D. E. Shaw Laminar Portfolios LLC

  	
   

  	
  c/o D E Shaw & Co

  120 West 45th Street, 39th Floor

  New York, NY 10036

  Facsimile: 212.845.1628

  
	
   

  	
   

  	
   

  
	
  William Herbert Hunt Trust Estate

  	
   

  	
  1601 Elm Street, Suite 3400

  Dallas, TX 75201

  Facsimile: 214.880.7101

  
	
   

  	
   

  	
   

  
	
  Investcorp Interlachen Multi-Strategy Master Fund Limited

  	
   

  	
  800 Nicollet Mall, Suite 2500

  Minneapolis, MN 55402

  Facsimile: 612.659.4457 or 612.659.4401

  
	
   

  	
   

  	
   

  
	
  Investor Company

  	
   

  	
  c/o TD Waterhouse Investor Services, Inc.

  77 Bloor St., West 3rd Floor

  Toronto, Ontario M4Y 1A9

  Facsimile: 416.413.3613

  
	
   

  	
   

  	
   

  
	
  Kellogg Capital Group LLC

  	
   

  	
  55 Broadway, 4th Floor

  New York, NY 10006

  Facsimile: 212.380.5665

  
	
   

  	
   

  	
   

  
	
  O’Connor Global Multi-Strategy Alpha Master Limited

  	
   

  	
  c/o UBS O’Connor LLC

  1 North Wacker Dr, 32nd Floor

  Chicago, IL 60606

  Facsimile: 312.525.6271

  
	
   

  	
   

  	
   

  
	
  Radcliffe SPC, Ltd. for and on behalf of the Class A
  Segregated Portfolio

  	
   

  	
  c/o Radcliffe Capital Management, L.P.

  Attn: Chris Hinkel

  50 Monument Road, Suite 300

  Bala Cynwyd, PA 19004

  Facsimile: 610.617.0580

  
	
   

  	
   

  	
   

  
	
  Beth Rose

  	
   

  	
  c/o TD Waterhouse Canada Inc.

  282 Lakeshore Rd E, Main Floor

  Oakville, Ontario L6J 5B2

  Facsimile: 905.337.3796

  
	
   

  	
   

  	
   

  
	
  Dundee Securities Corp.

  	
   

  	
  1 Adelaide St E, Ste 2700

  Toronto, Ontario M5C 2V9

  Facsimile: 416.849.7898

  
	
   

  	
   

  	
   

  
	
  Gundyco

  	
   

  	
  161 Bay St 10th Floor

  Toronto, Ontario M5J 2S8

  Facsimile: 416-594-8749

  
	
   

  	
   

  	
   

  
	
  Brant Investments Limited EIF

  	
   

  	
  Brant Investments Limited

  c/o Royal Bank Plaza North Tower

  200 Bay St., 21st Floor

  Toronto, Ontario M5J 2J5

  Facsimile: 416.955.6518

  

 

F-36

 

	
  Name of Series A Holder

  	
   

  	
  Series A
  Holder Address and Facsimile Number

  
	
   

  	
   

  	
   

  
	
  Bansco & Co. ITF John Hogan

  	
   

  	
  40 King St. W

  23rd Floor Scotia Plaza

  Toronto, Ontario M5H 1H1

  Facsimile: 416.945.4339

  
	
   

  	
   

  	
   

  
	
  Scotia Capital, Inc.

  	
   

  	
  40 King St. W

  23rd Floor Scotia Plaza

  Toronto, Ontario M5H 1H1

  Facsimile: 416.945.4339

  
	
   

  	
   

  	
   

  
	
  MacDougall, MacDougall & MacTier, Inc.

  	
   

  	
  Place Du Canada

  1010 De La Gauchetiere West, Ste 2000

  Montreal, Quebec H3B 4J1

  Facsimile: 514.871.9254

  
	
   

  	
   

  	
   

  
	
  Bansco & Co. for Nancy Hogan.

  	
   

  	
  40 King St. W

  23rd Floor Scotia Plaza

  Toronto, Ontario M5H 1H1

  Facsimile: 416.945.4339

  
	
   

  	
   

  	
   

  
	
  Jeff Johnson

  	
   

  	
  Burnett Plaza

  801 Cherry Street, Suite 3200

  Fort Worth, TX 76102

  Facsimile: 817.698.0762

  
	
   

  	
   

  	
   

  
	
  GMP Securities LP

  	
   

  	
  145 King Street

  Suite 1100

  Toronto, Ontario M5H 1J8

  Facsimile:

  
	
   

  	
   

  	
   

  
	
  GMP Securities LP ITF Donald Cook Carlisle Family Trust

  	
   

  	
  145 King Street

  Suite 1100

  Toronto, Ontario M5H 1J8

  Facsimile:

  
	
   

  	
   

  	
   

  
	
  Raymond James LTD ITF Elaine Wilco A/C 1CR-NVVR-0

  	
   

  	
  925 W. Georgia Street

  Suite 2200

  Vancouver, BC V6C 3L2

  Facsimile:

  

 

F-37

 

EXHIBIT II

RESACA EXPLOITATION, INC. CONVERSION NOTICE

 

Reference is made to the
Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of Resaca Exploitation, Inc. (the “Certificate of Designations”).
In accordance with and pursuant to the Certificate of Designations, the
undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock, par value $0.01 per share (the “Preferred Shares”),
of Resaca Exploitation, Inc., a Texas corporation (the “Company”), indicated
below into shares of common stock, par value $0.01 per share (the “Common Stock”), of
the Company, as of the date specified below.

 

Date of Conversion:

 

Number of Preferred Shares
to be converted:

 

Stock certificate no(s). of
Preferred Shares to be converted:

 

Tax ID Number (If
applicable):

 

Please confirm the following information:

 

Conversion Price:

 

Number of shares of Common
Stock to be issued:

 

Please issue the Common
Stock into which the Preferred Shares are being converted in the following name
and to the following address:

 

Issue to:

 

 

Address:

 

Telephone Number:

 

Facsimile Number:

 

Authorization:

 

By:

 

Title:

 

Dated:

 

Account Number (if
electronic book entry transfer):

 

Transaction Code Number (if
electronic book entry transfer):

 

[NOTE TO HOLDER—THIS FORM MUST
BE SENT CONCURRENTLY TO COMPANY TRANSFER AGENT]

 

F-38

 

ACKNOWLEDGMENT

 

The Company hereby
acknowledges this Conversion Notice and hereby instructs [Company Transfer
Agent] to issue the above indicated number of shares of Common Stock in
accordance with the Irrevocable Transfer Agent Instructions dated                  
, 20           from the
Company and acknowledged and agreed to by [Company Transfer Agent].

 

	
   

  	
  RESACA EXPLOITATION, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

F-39

 

EXHIBIT III

 

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

 

[Company Transfer Agent]

[Address]

Attention:

 

Re:  Resaca
Exploitation, Inc.

 

Ladies and Gentlemen:

 

[We are][I am] counsel to
Resaca Exploitation, Inc., a Texas corporation (the “Company”), and have
represented the Company in connection with that certain Agreement and Plan of
Merger, dated September 25, 2009 (the “Merger Agreement”), entered into by and
among the Company, Cano Petroleum, Inc., a Delaware corporation (“Cano”), and Resaca
Acquisition Sub, Inc., a Delaware corporation (the “Merger Sub”),
pursuant to which the Company issued to the holders of Series D
Convertible Preferred Stock of Cano (collectively, the “Holders”) Series A
Convertible Preferred Stock , par value $0.01 per share, of the Company (the “Preferred Shares”)
which are convertible into the Company’s common stock, $0.01 par value (the “Common Stock”).
Pursuant to the Merger Agreement, the Company also has entered into an
Investors Rights Agreement with the Holders (the “Investors Rights Agreement”) pursuant to
which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Investors Rights Agreement) under the Securities
Act of 1933, as amended (the “1933 Act”). In connection with the Company’s obligations
under the Investors Rights Agreement, on                                       ,
2010, the Company filed a Registration Statement on Form S-1 (File No. 333-
                        )
(the “Registration
Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the
Registrable Securities which names each of the Holders as a selling stockholder
thereunder.

 

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

 

Subject to the specific
prohibitions contained in the Investors Rights Agreement regarding the
inability to use the Registration Statement under specific circumstances (the “Registration Statement Limitations”),
this letter shall serve as our standing instruction to you that the shares of
Common Stock are freely transferable by the Holders pursuant to the
Registration Statement provided the prospectus delivery requirements, if any,
are complied with. Subject to the Registration Statement Limitations, you need
not require further letters from us to effect any future legend-free issuance
or reissuance of shares of Common Stock to the Holders as contemplated by the
Company’s Irrevocable Transfer Agent Instructions dated                                ,
20             .
This letter shall serve as our standing opinion with regard to this matter.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  [ISSUER’S COUNSEL]

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
  CC: [LIST NAMES OF HOLDERS]

  	
   

  	
   

  

 

F-40

 

EXHIBIT E

 

SCHEDULE OF SERIES A HOLDERS

 

	
  Name of Series A Holder

  	
   

  	
  Series A
  Holder Address

  and Facsimile Number

  	
   

  	
  Maximum

  Ownership

  Percentage

  	
   

  
	
  D. E. Shaw Laminar Portfolios LLC

  	
   

  	
  c/o D E Shaw & Co 

  120 West 45th Street, 39th Floor 

  New York, NY 10036 

  Facsimile: 212.845.1628

  	
   

  	
  9.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  William Herbert Hunt Trust Estate

  	
   

  	
  1601 Elm Street, Suite 3400 

  Dallas, TX 75201 

  Facsimile: 214.880.7101

  	
   

  	
  9.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Investcorp Interlachen Multi-Strategy Master Fund Limited

  	
   

  	
  800 Nicollet Mall, Suite 2500 

  Minneapolis, MN 55402 

  Facsimile: 612.659.4457 or 

  612.659.4401

  	
   

  	
  9.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Investor Company

  	
   

  	
  c/o TD Waterhouse Investor Services, Inc. 

  77 Bloor St., West 3rd Floor 

  Toronto, Ontario M4Y 1A9 

  Facsimile: 416.413.3613

  	
   

  	
  9.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Kellogg Capital Group LLC

  	
   

  	
  55 Broadway, 4th Floor 

  New York, NY 10006 

  Facsimile: 212.380.5665

  	
   

  	
  9.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  O’Connor Global Multi-Strategy Alpha Master Limited

  	
   

  	
  c/o UBS O’Connor LLC 

  1 North Wacker Dr, 32nd Floor 

  Chicago, IL 60606 

  Facsimile: 312.525.6271

  	
   

  	
  9.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Radcliffe SPC, Ltd. for and on behalf of the Class A
  Segregated Portfolio

  	
   

  	
  c/o Radcliffe Capital Management, L.P. 

  Attn: Chris Hinkel

  50 Monument Road, Suite 300

  Bala Cynwyd, PA 19004 

  Facsimile: 610.617.0580

  	
   

  	
  4.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Beth Rose

  	
   

  	
  c/o TD Waterhouse Canada Inc. 

  282 Lakeshore Rd E, Main Floor 

  Oakville, Ontario L6J 5B2 

  Facsimile: 905.337.3796

  	
   

  	
  9.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dundee Securities Corp.

  	
   

  	
  1 Adelaide St E, Ste 2700 

  Toronto, Ontario M5C 2V9 

  Facsimile: 416.849.7898

  	
   

  	
  9.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gundyco

  	
   

  	
  161 Bay St 10th Floor 

  Toronto, Ontario M5J 2S8 

  Facsimile: 416-594-8749

  	
   

  	
  9.99

  	
  %

  

 

F-41

 

	
  Name of Series A Holder

  	
   

  	
  Series A
  Holder Address

  and Facsimile Number

  	
   

  	
  Maximum

  Ownership

  Percentage

  	
   

  
	
  Brant Investments Limited EIF

  	
   

  	
  Brant Investments Limited 

  c/o Royal Bank Plaza North Tower 

  200 Bay St., 21st Floor 

  Toronto, Ontario M5J 2J5 

  Facsimile: 416.955.6518

  	
   

  	
  9.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bansco & Co. ITF John Hogan

  	
   

  	
  40 King St. W 

  23rd Floor Scotia Plaza 

  Toronto, Ontario M5H 1H1 

  Facsimile: 416.945.4339

  	
   

  	
  9.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Scotia Capital, Inc.

  	
   

  	
  40 King St. W 

  23rd Floor Scotia Plaza 

  Toronto, Ontario M5H 1H1 

  Facsimile: 416.945.4339

  	
   

  	
  9.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MacDougall, MacDougall & MacTier, Inc.

  	
   

  	
  Place Du Canada 

  1010 De La Gauchetiere West, Ste 2000 

  Montreal, Quebec H3B 4J1 

  Facsimile: 514.871.9254

  	
   

  	
  9.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bansco & Co. for Nancy Hogan.

  	
   

  	
  40 King St. W 

  23rd Floor Scotia Plaza 

  Toronto, Ontario M5H 1H1

  Facsimile: 416.945.4339

  	
   

  	
  9.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Jeff Johnson

  	
   

  	
  Burnett Plaza 

  801 Cherry Street, Suite 3200 

  Fort Worth, TX 76102 

  Facsimile: 817.698.0762

  	
   

  	
  No limit

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GMP Securities LP

  	
   

  	
  145 King Street 

  Suite 1100 

  Toronto, Ontario M5H 1J8 

  Facsimile:

  	
   

  	
  9.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GMP Securities LP ITF Donald Cook Carlisle Family Trust

  	
   

  	
  145 King Street 

  Suite 1100 

  Toronto, Ontario M5H 1J8 

  Facsimile:

  	
   

  	
  9.99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Raymond James LTD ITF Elaine Wilco A/C 1CR-NVVR-0

  	
   

  	
  925 W. Georgia Street 

  Suite 2200 

  Vancouver, BC V6C 3L2 

  Facsimile:

  	
   

  	
  9.99

  	
  %

  

 

F-42

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