Document:

EXHIBIT
10.10

 

AMENDMENT NO. 9 AND AGREEMENT

 

This AMENDMENT NO. 9 AND AGREEMENT (“Agreement”) entered into and made
effective as of March 17, 2008 (“Effective Date”) is among Cano Petroleum, Inc.,
a Delaware corporation (“Borrower”), the Guarantors (as defined below), the
Lenders (as defined below), and Union Bank of California, N.A., as
administrative agent for such Lenders (in such capacity, the “Administrative
Agent”) and as issuing lender (in such capacity, the “Issuing Lender”).

 

RECITALS

 

A.            The Borrower is
party to that certain Credit Agreement dated as of November 29, 2005, as
heretofore amended (as so amended, the “Credit Agreement”) among the Borrower,
the lenders party thereto from time to time (the “Lenders”), the Administrative
Agent, and the Issuing Lender.

 

B.            The Borrower proposes to enter into a
Subordinated Credit Agreement dated the date hereof (“Subordinated Credit
Agreement”) among the Borrower, UnionBanCal Equities, Inc. as
administrative agent (“Subordinated Agent”) and the lenders party
thereto from time to time (the “Subordinated Lenders”) pursuant to which
the Subordinated Lenders propose to make a single advance term loan in an
aggregate amount equal to $15,000,000 (the “Subordinated Loan”) the
proceeds of which will be used by the Borrower to prepay a portion of the
outstanding Advances under the Credit Agreement.

 

C.            The Subordinated Lenders are not willing to
make the Subordinated Loan unless the Borrower’s obligations with respect
thereto and such other obligations arising under or pursuant to the
Subordinated Credit Agreement are secured by a junior Lien encumbering the
Collateral (“Subordinated Lien”) and guaranteed by the Guarantors under
a subordinated guaranty (“Subordinated Guaranty”).

 

D.            Such Subordinated Loan, Subordinated Lien and
Subordinated Guaranty are not permitted under the terms of the Credit Agreement
but the Lenders are willing to consent thereto, subject to the terms hereof,
and provided that the Subordinated Lenders are willing to enter into that
certain Subordination and Intercreditor Agreement to be dated the date hereof
which shall have terms satisfactory to the Administrative Agent and the Lenders
(“Subordination and Intercreditor”) pursuant to which such Subordinated
Loan, Subordinated Lien and Subordinated Guaranty will be subordinated to the
Obligations, the Liens granted to the Administrative Agent under the Security
Instruments and the Guaranties, respectively.

 

E.             The parties hereto wish to, subject to the
terms and conditions set forth herein, amend certain provisions of the Credit
Agreement in order to permit the Borrower to incur the Subordinated Loan, to
grant the Subordinated Lien and for the Guarantors to provide the Subordinated
Guaranty and to make certain other revisions to the terms thereof.

 

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

 

 

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

 

Section 2.         Other
Definitional Provisions. Article, Section, Schedule,
and Exhibit references are to Articles and Sections of and Schedules and
Exhibits to this Agreement, unless otherwise specified.  All references to instruments, documents,
contracts, and agreements are references to such instruments, documents,
contracts, and agreements as the same may be amended, supplemented, and
otherwise modified from time to time, unless otherwise specified.  The words “hereof”, “herein”, and “hereunder”
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement.  The term “including” means “including,
without limitation,”.  Paragraph headings
have been inserted in this Agreement as a matter of convenience for reference
only and it is agreed that such paragraph headings are not a part of this
Agreement and shall not be used in the interpretation of any provision of this
Agreement.

 

Section 3.         Amendments to Credit Agreement.

 

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

 

“Subordinated Agent” means
UnionBanCal Equities Inc., or such other Subordinated Lender serving in the
capacity as the “subordinated agent” under the Subordinated Credit Agreement to
the extent permitted under the Subordinated Credit Agreement and the
Subordination and Intercreditor Agreement.

 

“Subordinated Credit Agreement”
means the Subordinated Credit Agreement dated as of March 17, 2008 among
the Borrower, the Subordinated Agent and the Subordinated Lenders, as amended,
restated, supplemented or otherwise modified but only to the extent permitted
under the terms of the Subordination and Intercreditor Agreement.

 

“Subordinated Debt” means
the “Obligations” as defined in the Subordinated Credit Agreement.

 

“Subordinated Debt Maturity
Date” means the “Maturity Date” as defined in the Subordinated Credit
Agreement.

 

“Subordinated Lenders”
means the lenders party to the Subordinated Credit Agreement from time to time.

 

“Subordinated Loan Documents”
means the Subordinated Credit Agreement, the promissory notes executed and
delivered pursuant to the Subordinated Credit Agreement, and each other
agreement, instrument, or document executed by the Borrower or any of its
Subsidiaries or any of their Responsible Officers in connection with the
Subordinated Credit Agreement.

 

“Subordination and
Intercreditor Agreement” means that certain Subordination and Intercreditor
Agreement, which shall be in a form acceptable to the Administrative Agent 

 

2

 

and the Lenders, dated as of March 17,
2008 among the Administrative Agent, the Borrower, the Guarantors, the Lenders,
the Subordinated Agent and the Subordinated Lenders.

 

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

 

“Loan Documents” means
this Agreement, the Notes, the Letter of Credit Documents, the Guaranties, the
Security Instruments, the Collateral Trust and Intercreditor Agreement, and
each other agreement, instrument, or document executed by the Borrower, any
Guarantor, or any of the Borrower’s or a Guarantor’s Subsidiaries or any of
their officers at any time in connection with this Agreement.

 

(c)      Section 5.06 of the
Credit Agreement is hereby amended by re-lettering clause (p) therein as
clause (q) and adding the following new clause (p) to appear above
such clause:

 

(p)          USA Patriot Act.  Promptly, following a request by any Lender,
all documentation and other information that such Lender reasonably requests in
order to comply with its ongoing obligations under applicable “know your
customer” and anti-money laundering rules and regulations, including the
USA Patriot Act; and

 

(d)      Section 4.14(a) of
the Credit Agreement is hereby amended by replacing the first sentence therein
with the following:

 

Other
than those identified on Schedule 4.14(a), neither the Borrower nor any
Guarantor is a party to any indenture, loan, or credit agreement or any lease
or other agreement or instrument or subject to any charter or corporate
restriction or provision of applicable law or governmental regulation that
could reasonably be expected to cause a Material Adverse Change.

 

(e)      Section 5.12 of the
Credit Agreement is hereby replaced in its entirety with the following:

 

Section 5.12    Hedging
Arrangements.  The
Borrower shall maintain (a) each Hydrocarbon Hedge Agreement that is in
place as of the effective date of the Amendment No. 5 and Agreement which
amends this Agreement until the stated maturity of such Hydrocarbon Hedge
Agreement and (b)  Hydrocarbon Hedge Agreements covering no less than 50%
and no more than 85% of the production volumes attributable to “proved,
developed and producing” Proven Reserves of the Borrower’s and its Subsidiaries’
Oil and Gas Properties for a minimum period of at least three years as of the
end of December 31, 2006 and as of the end of each six month period ending
thereafter, and at a minimum price floor as required by the Majority Lenders
from time to time.

 

(f)       Section 6.01 of the
Credit Agreement is hereby amended by replacing clause (a) therein in its
entirety with the following:

 

3

 

(a)          Liens securing the Obligations
and Liens securing the Subordinated Debt to the extent permitted under the
Subordination and Intercreditor Agreement;

 

(g)      Section 6.02 of the
Credit Agreement is hereby amended by replacing clause (b) therein in its
entirety with the following:

 

(b)          the Subordinated Debt.

 

(h)      Section 6.03 of the
Credit Agreement is hereby replaced in its entirety with the following:

 

Section 6.03    Agreements
Restricting Liens and Distributions. 
The Borrower shall not, nor shall it permit any of its Subsidiaries to,
create, incur, assume or permit to exist any contract, agreement or
understanding (other than this Agreement, the Security Instruments or the
Subordinated Loan Documents) which in any way prohibits or restricts the
granting, conveying, creation or imposition of any Lien on any of its Property,
whether now owned or hereafter acquired, to secure the Obligations or restricts
any Subsidiary from paying dividends to the Borrower, or which requires the
consent of or notice to other Persons in connection therewith.

 

(i)       Section 6.14 of the
Credit Agreement is hereby replaced in its entirety with the following:

 

Section 6.14    Limitation
on Speculative Hedging.  Other than
the Hedge Contracts required to be entered into and maintained pursuant to Section 5.12
hereof, the Borrower shall not, nor shall it permit any of its Subsidiaries to,
(a) purchase, assume, or hold a speculative position in any commodities
market or futures market or enter into any Hydrocarbon Hedge Agreement,
Interest Hedge Agreement or similar hedge arrangement for speculative purposes,
or (b) be party to or otherwise enter into any Hedge Contract which (i) is
entered into for reasons other than as a part of its normal business operations
as a risk management strategy and/or hedge against changes resulting from
market conditions related to the Borrower’s operations, (ii) covers
notional volumes in excess of 85% of the anticipated production volumes
attributable to Proven Reserves of the Borrower and its Subsidiaries during the
period such hedge arrangement is in effect, or (iii) is longer than three
years in duration.

 

(j)       Section 6.20 of the
Credit Agreement is hereby replaced in its entirety with the following:

 

Section 6.20    Subordinated
Debt.  Except as otherwise permitted
by the terms of the Subordination and Intercreditor Agreement, neither the
Borrower nor any of its Subsidiaries shall (b) make any optional,
mandatory or scheduled payments on account of principal (whether by redemption,
purchase, retirement, defeasance, set-off or otherwise), interest, premiums and
fees in respect of the Subordinated Debt, or (b) amend, supplement or
otherwise modify the terms of the Subordinated Debt.

 

(k)      Section 7.02 of the
Credit Agreement is hereby amended by replacing clause (q) and clause (r) in
their entirety with the following:

 

4

 

(q)          Subordinated Credit Agreement.  An “Event of Default” under the Subordinated
Credit Agreement shall have occurred.

 

(r)           Subordination
and Intercreditor Agreement. 
The subordination provisions of the Subordination and Intercreditor
Agreement shall be invalidated or otherwise cease to be in full force and
effect.

 

(l)       Section 7.06 of the
Credit Agreement is hereby amended by replacing clause (c) in its entirety
with the following:

 

(c)           Third,
the remainder, if any, to the Subordinated Agent as required under the
Subordination and Intercreditor Agreement and if such Subordination and
Intercreditor Agreement has been terminated, then to the Borrower, its
Subsidiaries, their respective successors or assigns, or such other Person as
may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct.

 

(m)     Section 9.01 of the
Credit Agreement is hereby amended by replacing clause (k) in its entirety
with the following:

 

(k)           amend or waive any provision of,
nor consent to any departure by any party thereto from, the Subordination and
Intercreditor Agreement,

 

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

 

(o)      Schedule 4.14(a) attached
to this Agreement is hereby added to the Credit Agreement as a new Schedule
4.14(a).

 

Section 4.         Mandatory
Prepayment.  The Borrower shall prepay the outstanding
Advances under the Credit Agreement with proceeds from the Subordinated Loan
made by the Subordinated Lenders on the date hereof, together with accrued
interest on the principal amount prepaid and amounts, if any, required to
be paid pursuant to Section 2.12  of
the Credit Agreement as a result of such prepayment being made on the date
hereof.  The failure to comply with this Section 4
shall be an immediate Event of Default under the Credit Agreement.

 

Section 5.         Subordination
and Intercreditor Agreement.  The Administrative Agent is hereby authorized
on behalf of the Lenders for the Lenders and its Affiliates that are Swap
Counterparties to enter into the Subordination and Intercreditor
Agreement.  A copy of such Subordination
and Intercreditor Agreement will be made available to each Secured Party on the
Effective Date and thereafter upon request. 
Each Lender and each Swap Counterparty (by receiving the benefits
thereunder and of the Collateral) acknowledges and agrees to the terms of such
Subordination and Intercreditor Agreement and agrees that the terms thereof
shall be binding on such Secured Party and its successors and assigns, as if it
were a party thereto.

 

Section 6.         Copies
of Subordinated Loan Documents.  As requested by the Administrative Agent, the
Borrower shall deliver copies of the Subordinated Credit Agreement and each
other agreement, instrument, or document executed by the Borrower or any of its

 

5

 

Subsidiaries
or any of their Responsible Officers at any time in connection with the
Subordinated Credit Agreement to the Administrative Agent.

 

Section 7.         Borrower Representations and Warranties.  The Borrower represents and warrants that: (a) after
giving effect to this Agreement, the representations and warranties contained
in the Credit Agreement and the representations and warranties contained in the
other Loan Documents are true and correct in all material respects on and as of
the Effective Date as if made on as and as of such date except to the extent
that any such representation or warranty expressly relates solely to an earlier
date, in which case such representation or warranty is true and correct in all
material respects as of such earlier date; (b) after giving effect to this
Agreement, no Default has occurred and is continuing; (c) the execution, delivery and performance of
this Agreement are within the corporate power and authority of the Borrower and
have been duly authorized by appropriate corporate and governing action and
proceedings; (d) this Agreement constitutes the legal, valid, and binding
obligation of the Borrower enforceable in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the rights of creditors generally and general principles
of equity; (e) there are no governmental or other third party consents,
licenses and approvals required in connection with the execution, delivery,
performance, validity and enforceability of this Agreement; and (f) the
Liens under the Security Instruments are valid and subsisting and secure
Borrower’s obligations under the Loan Documents.

 

Section 8.         Guarantors Representations and Warranties.  Each Guarantor represents and warrants that: (a) after
giving effect to this Agreement, the representations and warranties contained
in the Guaranty and the representations and warranties contained in the other
Loan Documents are true and correct in all material respects on and as of the
Effective Date as if made on as and as of such date except to the extent that
any such representation or warranty expressly relates solely to an earlier
date, in which case such representation or warranty is true and correct in all
material respects as of such earlier date; (b) after giving effect to this
Agreement, no Default has occurred and is continuing; (c) the execution,
delivery and performance of this Agreement are within the corporate, limited
liability company, or partnership power and authority of such Guarantor and
have been duly authorized by appropriate corporate, limited liability company,
or partnership action and proceedings; (d) this Agreement constitutes the
legal, valid, and binding obligation of such Guarantor enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the rights of
creditors generally and general principles of equity; (e) there are no
governmental or other third party consents, licenses and approvals required in
connection with the execution, delivery, performance, validity and
enforceability of this Agreement; (f) it has no defenses to the
enforcement of the Guaranty; and (g) the Liens under the Security
Instruments are valid and subsisting and secure such Guarantor’s and the
Borrower’s obligations under the Loan Documents.

 

Section 9.         Conditions to Effectiveness.  This Agreement and the
amendments to the Credit Agreement provided herein shall become effective on
the Effective Date and enforceable against the parties hereto upon the
occurrence of the following conditions precedent:

 

(a)           The Administrative Agent
shall have received multiple original counterparts, as requested by the
Administrative Agent, of (i) this Agreement duly and validly 

 

6

 

executed and delivered by
duly authorized officers of the Borrower, the Guarantors, the Administrative
Agent, and the Lenders, and (ii) the Subordination and Intercreditor
Agreement duly and validly executed and delivered by the authorized officers of
the Administrative Agent, the Lenders, the Subordinated Agent, the Subordinated
Lenders, the Borrower and the Guarantors.

 

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

 

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

 

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

 

(e)           The Administrative Agent
Borrower shall have received evidence satisfactory to it that concurrently with
the entering into this Agreement, the Borrower shall have entered into the
Subordinated Credit Agreement, the terms and conditions thereof shall be reasonably satisfactory to the
Administrative Agent and the Lenders and the conditions precedent set forth in Section 3.01
of the Subordinated Credit Agreement shall have been satisfied or waived in
writing.

 

Section 10.      Acknowledgments and Agreements.

 

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

 

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

 

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

 

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

 

(e)      This Agreement is a Loan
Document for the purposes of the provisions of the other Loan Documents.  Without limiting the foregoing, any breach of
representations, 

 

7

 

warranties, and covenants
under this Agreement shall be a Default or Event of Default, as applicable,
under the Credit Agreement.

 

Section 11.      Reaffirmation of the Guaranty.  Each Guarantor hereby ratifies, confirms,
acknowledges and agrees that its obligations under the Guaranty are in full
force and effect and that such Guarantor continues to unconditionally and
irrevocably guarantee the full and punctual payment, when due, whether at
stated maturity or earlier by acceleration or otherwise, all of the Guaranteed
Obligations (as defined in the Guaranty), as such Guaranteed Obligations may
have been amended by this Agreement, and its execution and delivery of this
Agreement does not indicate or establish an approval or consent requirement by
such Guarantor under the Guaranty in connection with the execution and delivery
of amendments, consents or waivers to the Credit Agreement, the Notes or any of
the other Loan Documents.

 

Section 12.      Counterparts.  This Agreement may be signed in any number of
counterparts, each of which shall be an original and all of which, taken
together, constitute a single instrument. 
This Agreement may be executed by facsimile signature and all such
signatures shall be effective as originals.

 

Section 13.      Successors
and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns permitted pursuant to the Credit Agreement.

 

Section 14.      Invalidity.  In the event that any one or more of the
provisions contained in this Agreement shall for any reason be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement.

 

Section 15.      Governing
Law.  This
Agreement shall be deemed to be a contract made under and shall be governed by
and construed in accordance with the laws of the State of Texas.

 

Section 16.      Entire Agreement. THIS AGREEMENT, THE CREDIT AGREEMENT AS
AMENDED BY THIS AGREEMENT, THE NOTES, AND THE OTHER LOAN DOCUMENTS CONSTITUTE
THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT
MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT
THERETO.

 

THERE ARE NO UNWRITTEN
ORAL AGREEMENTS AMONG THE PARTIES.

 

[SIGNATURES BEGIN ON NEXT
PAGE]

 

8

 

EXECUTED effective as of the
date first above written.

 

	
  BORROWER:

  	
  CANO
  PETROLEUM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Morris B. Smith

  
	
   

  	
   

  	
  Morris B. Smith,

  
	
   

  	
   

  	
  Senior Vice President and

  
	
   

  	
   

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
  GUARANTORS:

  	
  SQUARE
  ONE ENERGY, INC.

  
	
   

  	
  LADDER
  COMPANIES, INC.

  
	
   

  	
  W.O.
  ENERGY OF NEVADA, INC.

  
	
   

  	
  WO
  ENERGY, INC.

  
	
   

  	
  PANTWIST,
  LLC

  
	
   

  	
  CANO
  PETRO OF NEW MEXICO, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Each
  by:

  	
   /s/
  Morris B. Smith

  
	
   

  	
   

  	
  Morris B. Smith,

  
	
   

  	
   

  	
  Vice President and

  
	
   

  	
   

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  W.O.
  OPERATING COMPANY, LTD.

  
	
   

  	
  By:
  WO Energy, Inc., its general partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Morris B. Smith

  
	
   

  	
   

  	
  Morris B. Smith,

  
	
   

  	
   

  	
  Vice President and

  
	
   

  	
   

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  W.O.
  PRODUCTION COMPANY, LTD.

  
	
   

  	
  By:
  WO Energy, Inc., its general partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Morris B. Smith

  
	
   

  	
   

  	
  Morris B. Smith,

  
	
   

  	
   

  	
  Vice President and

  
	
   

  	
   

  	
  Chief Financial Officer

  
				

 

 

Signature Page to Amendment No. 9 and Agreement

 

 

	
  ADMINISTRATIVE AGENT/

  	
   

  
	
  ISSUING LENDER/LENDER:

  	
  UNION
  BANK OF CALIFORNIA, N.A.,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Randall Osterberg

  
	
   

  	
   

  	
  Randall Osterberg

  
	
   

  	
   

  	
  Senior Vice President

  

 

 

Signature Page to Amendment No. 9 and Agreement

 

 

	
   

  	
  NATIXIS,
  as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Donovan C. Broussard

  
	
   

  	
  Name:

  	
  Donovan
  C. Broussard

  
	
   

  	
  Title:

  	
  Managing
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Liana Tchernysheva

  
	
   

  	
  Name:

  	
  Liana
  Tchernysheva

  
	
   

  	
  Title:

  	
  Director

  
						

 

 

Signature Page to Amendment No. 9 and Agreement

 

 

Schedule 4.07

 

Burnett:

 

On
March 23, 2006, the following lawsuit was filed in the 100th Judicial
District Court in Carson County, Texas; Cause No. 9840, The Tom L. and
Anne Burnett Trust, by Anne Burnett Windfohr, Windi Phillips, Ben Fortson, Jr.,
George Beggs, III and Ed Hudson, Jr. as Co-Trustees; Anne Burnett
Windfohr; and Burnett Ranches, Ltd. v. Cano Petroleum, Inc., W.O.
Energy of Nevada, Inc., W. O. Operating Company, Ltd, and WO Energy, Inc.  The plaintiffs claim that the electrical
wiring and equipment of Cano or certain of its subsidiaries relating to oil and
gas operations started a wildfire that began on March 12, 2006 in Carson
County.  The owner of the remainder of
the mineral estate, Texas Christian University, has intervened in the suit joining
the plaintiffs’ request to terminate certain oil and natural gas leases.

 

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

 

On
June 21, 2007, the Judge of the 100th Judicial District Court issued a Final
Judgment (a) granting motions for summary judgment in favor of Cano and
certain of its subsidiaries on plaintiffs’ claims for (i) breach of
contract/termination of an oil and gas lease; and (ii) negligence; and (b) granting
the plaintiffs’ no-evidence motion for summary judgment on contributory
negligence, assumption of risk, repudiation and estoppel affirmative defenses
asserted by Cano and certain of its subsidiaries.  The Final Judgment has been appealed.

 

Adcock:

 

On
April 28, 2006, the following lawsuit was filed in the 31st
Judicial District Court of Roberts County, Texas, Cause No. 1922, Robert
and Glenda Adcock, et al. v. Cano Petroleum, Inc., W.O. Energy of Nevada, Inc.,
W. O. Operating Company, Ltd, and WO Energy, Inc. (“Adcock”).  There are 47 plaintiffs and three groups of
intervenors that claim that the electrical wiring and equipment of Cano or
certain of its subsidiaries relating to oil and gas operations started a
wildfire that began on March 12, 2006 in Carson County.

 

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

 

 

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

 

Hutchison:

 

On
April 10, 2006, the following lawsuit was filed in the 31st Judicial
District Court of Roberts County, Texas, Cause No. 1920, Joseph Craig
Hutchison and Judy Hutchison v. Cano Petroleum, Inc., W.O. Energy of
Nevada, Inc., W. O. Operating Company, Ltd, and WO Energy, Inc.
(“Hutchison”).  The plaintiffs
claim that the electrical wiring and equipment of Cano or certain of its subsidiaries
relating to oil and gas operations started a wildfire that began on March 12,
2006 in Carson County.  The plaintiffs (i) allege
negligence and trespass and (ii) seek damages including, but not limited
to, damages to their land and certain remedial expenses.  In addition, the plaintiffs seek exemplary
damages.

 

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

 

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

 

Chisum:

 

On
May 1, 2006, the following lawsuit was filed in the 31st Judicial District
Court of Roberts County, Texas, Cause No. 1923, Chisum Family
Partnership, Ltd. v. Cano, W.O. Energy of Nevada, Inc., W. O.
Operating Company, Ltd, and WO Energy, Inc. (“Chisum”).  The plaintiff claims that the electrical
wiring and equipment of Cano or certain of its subsidiaries relating to oil and
gas operations started a wildfire that began on March 12, 2006 in Carson
County.  The plaintiff (i) alleges
negligence and trespass and (ii) seeks damages, including, but not limited
to, damages to its land and certain remedial expenses.  In addition, the plaintiff seeks exemplary
damages.

 

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

 

 

Martinez:

 

On
July 3, 2006, the following lawsuit was filed in the 31st Judicial District Court of Roberts County, Texas, Cause No. 1928,
Rebecca Lee Martinez, et al v. Cano Petroleum, Inc., W.O. Energy of Nevada, Inc.,
W. O. Operating Company, Ltd., and WO Energy, Inc. (“Martinez”).  The plaintiffs claim that the electrical
wiring and equipment of Cano or certain of its subsidiaries relating to oil and
gas operations started a wildfire that began on March 12, 2006 in Carson
County, Texas.  The plaintiffs (i) allege
negligence and (ii) seek undisclosed damages for the wrongful death of two
relatives, Gerardo Villarreal and Medardo Garcia, who they claim died as a
result of the fire.  An additional heir
of one of Medardo Garcia has intervened in this case alleging similar claims.

 

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

 

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

 

Villarreal:

 

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

 

On
September 25, 2007, the Texas Judicial Panel on Multidistrict Litigation
granted Cano Petroleum, Inc., W.O. Energy of Nevada, Inc., W. O.
Operating Company, Ltd, and WO Energy, Inc.’s motion to transfer and
transferred the Martinez case to the Honorable Paul Davis, retired judge of the
200th District Court of Travis County, Texas.  No further action will be taken in the 233rd District Court until the 200th District Court resolves all
pretrial matters and remands this case to the 233rd District Court for trial.

 

SPS:

 

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

 

 

certain
of its subsidiaries relating to oil and gas operations started a wildfire that
began on March 12, 2006 in Carson County. 
The plaintiff (i) alleges negligence and breach of contract and (ii) seeks
$1,876,000 in damages for loss and damage to transmission and distribution
equipment, utility poles, lines and other equipment.  In addition, the plaintiff seeks
reimbursement for its attorney’s fees.

 

On
May 15, 2007, William L. Arrington, William M. Arrington and Mark and Le’Ann
Mitchell intervened in the lawsuit.  The
intervenors (i) allege negligence, res ipsa loquitor, nuisance, and
trespass and (ii) seek damages, including, but not limited to, damages to
their land, buildings and livestock and certain remedial expenses totaling
approximately $201,280.  In addition, the
intervenors seek (i) reimbursement for their attorney’s fees and (ii) exemplary
damages.  The intervenors also claim that
Cano and its subsidiaries are jointly and severally liable as a single business
enterprise and/or as a partnership or de facto partnership.

 

On
September 25, 2007, the Texas Judicial Panel on Multidistrict Litigation
granted Cano Petroleum, Inc., W.O. Energy of Nevada, Inc., W. O. Operating
Company, Ltd, and WO Energy, Inc.’s motion to transfer and
transferred the SPS case to the Honorable Paul Davis, retired judge of the 200th District Court of Travis County,
Texas.  No further action will be taken
in the 100th District Court until the 200th District Court resolves all
pretrial matters and remands this case to the 100th District Court for trial.

 

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

 

On
January 15, 2008, the Jones and McMordie Ranch Partnership intervened in
the consolidated case in the 200th District Court of Travis County, Texas as
part of the SPS case.  The intervenor (i) alleges negligence,
trespass and nuisance and (ii) seeks damages, including, but not limited
to, damages to its land.  In addition,
the intervenor seeks exemplary damages. 
The intervenor also claims that Cano and its subsidiaries are jointly
and severally liable as a single business enterprise and/or as a partnership or
de facto partnership.

 

Burgess:

 

On
May 2, 2007, the following lawsuit was filed in the 84th Judicial District Court of
Hutchinson County, Texas, Cause No. 37,619, Gary and Genia Burgess, et al.
v. Cano Petroleum, Inc., W.O. Energy of Nevada, Inc., W.O.
Operating, Ltd. and WO Energy, Inc. (“Burgess”).  Eleven plaintiffs claim that electrical
wiring and equipment relating to oil and gas operations of the Company or
certain of its subsidiaries started a wildfire that began on March 12,
2006 in Carson County, Texas.  The
plaintiffs (i) allege negligence, res
ipsa loquitor, nuisance, and trespass and (ii) seek damages,
including, but not limited to, damages to their land, buildings and livestock
and certain remedial expenses totaling approximately $1,152,480.  In addition, the plaintiffs seek (i) reimbursement
for their attorney’s fees and (ii) exemplary damages.  The plaintiffs also claim that Cano and its
subsidiaries are jointly and severally liable as a single business enterprise
and/or as a partnership or de facto partnership.

 

 

On
September 25, 2007, the Texas Judicial Panel on Multidistrict Litigation
granted Cano Petroleum, Inc., W.O. Energy of Nevada, Inc., W. O.
Operating Company, Ltd, and WO Energy, Inc.’s motion to transfer and
transferred the Burgess case to the Honorable Paul Davis, retired judge of the
200th District Court of Travis County, Texas.  No further action will be taken in the 84th District Court until the 200th District Court resolves all pretrial
matters and remands this case to the 84th District Court for trial.

 

MDL
Case:

 

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

 

On December 19, 2007,
the plaintiffs and intervenor in the Martinez case nonsuited their claims in
the MDL Case.

 

Valenzuela:

 

On December 18, 2007,
the following lawsuit was filed in the 348th Judicial District Court of Tarrant County,
Texas, Cause No. 348-227907-07, Norma Valenzuela, et al. v. Cano Petroleum, Inc.,
W.O. Energy of Nevada, Inc., W.O. Operating, Ltd. and WO Energy, Inc.
(“Valenzuela”).  Six plaintiffs,
including the two plaintiffs and intervenor from the nonsuited Martinez case, claim that the electrical wiring and equipment of
Cano or certain of its subsidiaries relating to oil and gas operations started
a wildfire that began on March 12, 2006 in Carson County.  The plaintiffs (i) allege negligence and
(ii) seek undisclosed damages for the wrongful death of four relatives,
Manuel Dominguez, Roberto Chavira, Gerardo Villarreal and Medardo Garcia, who
they claim died as a result of the fire. 
In addition, plaintiffs seek (i) reimbursement for their attorney’s
fees and (ii) exemplary damages. 
The plaintiffs also claim that Cano and its subsidiaries are jointly and
severally liable as a single business enterprise and/or as a partnership or de
facto partnership.  Cano and its
subsidiaries filed a Motion to Dismiss or, in the Alternative, to Transfer
Venue and a Notice of Tag Along transferring the case to the MDL Case in the
200th Judicial District Court of Travis County,
Texas.

 

Abraham
Equine:

 

On February 11, 2008,
the following lawsuit was filed in the 48th Judicial District Court of Tarrant County,
Texas, Cause No.

048-228763-08, Abraham Equine, Inc. v. Cano Petroleum, Inc., W.O.
Energy of Nevada, Inc., W.O. Operating, Ltd. and WO Energy, Inc.
(“Abraham Equine”).  The plaintiff
claims that the electrical wiring and equipment
of Cano or

 

 

certain of
its subsidiaries relating to oil and gas operations started a wildfire that
began on March 12, 2006 in Carson County.  The plaintiff (i) alleges negligence,
trespass and nuisance and (ii) seeks damages, including, but not limited
to, damages to its land, livestock and lost profits.  In addition, the plaintiff seeks (i) reimbursement
for its attorney’s fees and (ii) exemplary damages.  The plaintiff also claims that Cano and its
subsidiaries are jointly and severally liable as a single business enterprise
and/or a general partnership or de facto partnership.  Cano and its subsidiaries filed a Motion to
Dismiss or, in the Alternative, to Transfer Venue and a Notice of Tag Along
transferring the case to the MDL Case in the 200th Judicial District Court of Travis County,
Texas.

 

Pfeffer:

 

On March 10, 2008, the
following lawsuit was filed in the 352nd Judicial District Court of
Tarrant County, Texas, Cause No. 352-229256-08, Gary Pfeffer v. Cano
Petroleum, Inc., W.O. Energy of Nevada, Inc., W.O.
Operating, Ltd. and WO Energy, Inc. (“Pfeffer”).  Cano and its subsidiaries have not yet been
served with the lawsuit.  The plaintiff claims that the electrical wiring and equipment of
Cano or certain of its subsidiaries relating to oil and gas operations started
a wildfire that began on March 12, 2006 in Carson County.  The plaintiff (i) alleges negligence,
trespass and nuisance, (ii) seeks undisclosed damages for the wrongful
death of his father, Bill W. Pfeffer, who he claims died as a result of the
fire and (iii) seeks undisclosed damages, including, but not limited to,
damages to his parents’ home and property. 
In addition, the plaintiff seeks exemplary damages.  The plaintiff also claims that Cano and its subsidiaries
are jointly and severally liable as a general partnership or de facto
partnership.  Cano and its subsidiaries
will file a Motion to Transfer Venue and a Notice of Tag Along transferring the
case to the MDL Case in the 200th Judicial District Court of Travis County,
Texas.

 

Ayers:

 

On March 11, 2008, the
following lawsuit was filed in the 141st Judicial District Court of Tarrant County,
Texas, Cause No. 141-229281-08, Pamela Ayers, et al. v. Cano Petroleum, Inc.,
W.O. Energy of Nevada, Inc., W.O. Operating, Ltd. and WO Energy, Inc.  Cano and its subsidiaries have not yet been
served with the lawsuit.  The plaintiffs claim that the electrical wiring and equipment of
Cano or certain of its subsidiaries relating to oil and gas operations started
a wildfire that began on March 12, 2006 in Carson County.  The plaintiffs (i) allege negligence and
(ii) seek undisclosed damages for the wrongful death of their mother,
Kathy Ryan, who they claim died as a result of the fire.  In addition, the plaintiffs seek exemplary
damages.  The plaintiffs also claim that
Cano and its subsidiaries are jointly and severally liable as a single business
enterprise and/or general partnership or de facto partnership.  Cano and its subsidiaries will file a Motion
to Transfer Venue and a Notice of Tag Along transferring the case to the MDL
Case in the 200th Judicial District Court of Travis County,
Texas.

 

Travelers:

 

On March 12, 2008, the
following lawsuit was filed in the 17th Judicial District Court of Tarrant County,
Texas, Cause No. 017-229316-08, The Travelers Lloyds Insurance Company and
Travelers Lloyds of Texas Insurance Company v. Cano Petroleum, Inc., W.O.
Energy of

 

 

Nevada, Inc., W.O.
Operating, Ltd. and WO Energy, Inc. 
Cano and its subsidiaries have not yet been served with the
lawsuit.  The plaintiffs claim that the electrical wiring and equipment of
Cano or certain of its subsidiaries relating to oil and gas operations started
a wildfire that began on March 12, 2006 in Carson County.  The plaintiffs (i) allege negligence, res ipsa loquitor, and trespass and (ii) claim
they are subrogated to the rights of their insureds for damages to their
buildings and building contents totaling $447,764.60.  The plaintiffs also claim that Cano and its
subsidiaries are jointly and severally liable as a single business enterprise
and/or general partnership or de facto partnership.  Cano and its subsidiaries will file a Motion
to Transfer Venue and a Notice of Tag Along transferring the case to the MDL
Case in the 200th Judicial District Court of Travis County,
Texas.

 

Tolling
Agreement:

 

On January 29, 2008,
Cano Petroleum, Inc., W.O. Energy of Nevada, Inc., W.O.
Operating, Ltd. and WO Energy, Inc. entered into a confidential
tolling agreement with two claimants, which preserved their ability to bring
claims against Cano and its subsidiaries arising out of, or related to,
wildfires that allegedly began on March 12, 2006 in Carson County.

 

 

Schedule 4.14(a)

 

AGREEMENTS
WHICH COULD CREATE A MATERIAL ADVERSE CHANGE

 

Credit
Agreement among Cano Petroleum, Inc. as Borrower, The Lenders Party hereto
from time to time, as Lenders, and Union Bank of California, N.A., as
Administrative Agent, dated November 29, 2005, including its amendments
(1-9) and all associated agreements.

 

Securities
Purchase Agreement dated August 25, 2006 by and among Cano Petroleum, Inc.
and the Buyers listed therein.

 

Certificate of Designations, Preferences and Rights of Series D
Convertible Preferred Stock of Cano Petroleum, Inc. filed August 31,
2006 with the Delaware Secretary of State.EXHIBIT
10.11

 

CONSENT AGREEMENT

 

This CONSENT AGREEMENT (“Agreement”) made effective as of February 21,
2008 (“Effective Date”) is among Cano Petroleum, Inc., a Delaware
corporation (“Borrower”), the Guarantors (as defined below), the Lenders
(as defined below), and Union Bank of California, N.A., as administrative agent
for such Lenders (in such capacity, the “Administrative Agent”) and as
issuing lender (in such capacity, the “Issuing Lender”).

 

RECITALS

 

A.                                   The Borrower is
party to that certain Credit Agreement dated as of November 29, 2005, as
heretofore amended (as so amended, the “Credit Agreement”; the defined
terms of which are used herein unless otherwise defined herein) among the
Borrower, the lenders party thereto from time to time (the “Lenders”),
the Administrative Agent, and the Issuing Lender.

 

B.                                     The Borrower proposes to enter into
Hydrocarbon Hedge Agreements with Union Bank of California, N.A. as the swap
counterparty which would cover notional volumes in excess of 80% of the
anticipated production volumes attributable to Proven Reserves of the Borrower
and its Subsidiaries during the period such hedge arrangements would be in
effect (“Excess Hedges”).

 

C.                                     Section 6.14 of the Credit Agreement
requires that the Borrower not enter into any hedging arrangements which would
cover notional volumes in excess of 80% of the anticipated production volumes
attributable to the Borrower’s and its Subsidiaries’ Proven Reserves.

 

D.                                    Subject to the terms and conditions set forth
herein, the Lenders wish to consent to the Borrower and its Subsidiaries
entering into such Excess Hedges.

 

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

 

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

 

Section 2.                                          Other
Definitional Provisions. Article, Section, Schedule,
and Exhibit references are to Articles and Sections of and Schedules and
Exhibits to this Agreement, unless otherwise specified.  All references to instruments, documents,
contracts, and agreements are references to such instruments, documents,
contracts, and agreements as the same may be amended, supplemented, and
otherwise modified from time to time, unless otherwise specified.  The words “hereof”, “herein”, and “hereunder”
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement.  The term “including” means “including,
without limitation,”.  Paragraph headings
have been inserted in this Agreement as a matter of convenience for reference
only and it is 

 

 

agreed that such paragraph headings are not a part of this Agreement
and shall not be used in the interpretation of any provision of this Agreement.

 

Section 3.                                          Consent.  The Lenders hereby consent to the Borrower
and its Subsidiares entering into the Excess Hedges; provided that, such Excess
Hedges shall not cover notional volumes in excess of 85% of the anticipated
production volumes attributable to the Borrower’s and its Subsidiaries’ Proven
Reserves.  The consent by the Lenders
described in this Section 3 is limited to the extent described above and
shall not be construed to be a consent to or a permanent waiver of the Section 6.14
of the Credit Agreement or any other terms, provisions, covenants, warranties
or agreements contained in any Loan Document.  Other than as consented to hereby, the
Borrower hereby agrees and acknowledges that the Lenders require and will
require strict performance by the Borrower of all of its obligations,
agreements and covenants contained in the Credit Agreement and the other Loan
Documents, and no inaction or action regarding any Default or Event of Default
is intended to be or shall be a waiver thereof.

 

Section 4.                                          Borrower Representations and Warranties.  The Borrower represents and warrants that: (a) after
giving effect to this Agreement, the representations and warranties contained
in the Credit Agreement and the representations and warranties contained in the
other Loan Documents are true and correct in all material respects on and as of
the Effective Date as if made on as and as of such date except to the extent
that any such representation or warranty expressly relates solely to an earlier
date, in which case such representation or warranty is true and correct in all
material respects as of such earlier date; (b) after giving effect to this
Agreement, no Default has occurred and is continuing; (c) the execution, delivery and performance of
this Agreement are within the corporate power and authority of the Borrower and
have been duly authorized by appropriate corporate and governing action and
proceedings; (d) this Agreement constitutes the legal, valid, and binding
obligation of the Borrower enforceable in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the rights of creditors generally and general principles
of equity; (e) there are no governmental or other third party consents,
licenses and approvals required in connection with the execution, delivery,
performance, validity and enforceability of this Agreement; and (f) the
Liens under the Security Instruments are valid and subsisting and secure
Borrower’s obligations under the Loan Documents.

 

Section 5.                                          Guarantors Representations and Warranties.  Each Guarantor represents and warrants that: (a) after
giving effect to this Agreement, the representations and warranties contained
in the Guaranty and the representations and warranties contained in the other
Loan Documents are true and correct in all material respects on and as of the
Effective Date as if made on as and as of such date except to the extent that
any such representation or warranty expressly relates solely to an earlier
date, in which case such representation or warranty is true and correct in all
material respects as of such earlier date; (b) after giving effect to this
Agreement, no Default has occurred and is continuing; (c) the execution,
delivery and performance of this Agreement are within the corporate, limited
liability company, or partnership power and authority of such Guarantor and
have been duly authorized by appropriate corporate, limited liability company,
or partnership action and proceedings; (d) this Agreement constitutes the
legal, valid, and binding obligation of such Guarantor enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the rights of
creditors generally and general principles of equity; (e) there 

 

2

 

are no governmental or other third party consents, licenses and
approvals required in connection with the execution, delivery, performance, validity
and enforceability of this Agreement; (f) it has no defenses to the
enforcement of the Guaranty; and (g) the Liens under the Security
Instruments are valid and subsisting and secure such Guarantor’s and the
Borrower’s obligations under the Loan Documents.

 

Section 6.                                          Conditions to Effectiveness.  This Agreement and the
amendments to the Credit Agreement provided herein shall become effective on
the Effective Date and enforceable against the parties hereto upon the
occurrence of the following conditions precedent:

 

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

 

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

 

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

 

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

 

Section 7.                                          Acknowledgments and Agreements.

 

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

 

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

 

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

 

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

 

3

 

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

 

Section 8.                                          Reaffirmation of the Guaranty.  Each Guarantor hereby ratifies, confirms,
acknowledges and agrees that its obligations under the Guaranty are in full
force and effect and that such Guarantor continues to unconditionally and
irrevocably guarantee the full and punctual payment, when due, whether at
stated maturity or earlier by acceleration or otherwise, all of the Guaranteed
Obligations (as defined in the Guaranty), as such Guaranteed Obligations may
have been amended by this Agreement, and its execution and delivery of this
Agreement does not indicate or establish an approval or consent requirement by
such Guarantor under the Guaranty in connection with the execution and delivery
of amendments, consents or waivers to the Credit Agreement, the Notes or any of
the other Loan Documents.

 

Section 9.                                          Counterparts.  This Agreement may be signed in any number of
counterparts, each of which shall be an original and all of which, taken
together, constitute a single instrument. 
This Agreement may be executed by facsimile signature and all such
signatures shall be effective as originals.

 

Section 10.                                   Successors
and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns permitted pursuant to the Credit Agreement.

 

Section 11.                                   Invalidity.  In the event that any one or more of the
provisions contained in this Agreement shall for any reason be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement.

 

Section 12.                                   Governing
Law.  This
Agreement shall be deemed to be a contract made under and shall be governed by
and construed in accordance with the laws of the State of Texas.

 

Section 13.                                   Entire
Agreement. THIS AGREEMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS AGREEMENT, THE
NOTES, AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG
THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY
PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.

 

THERE ARE NO UNWRITTEN
ORAL AGREEMENTS AMONG THE PARTIES.

 

[SIGNATURES BEGIN ON NEXT
PAGE]

 

4

 

EXECUTED effective as of the
date first above written.

 

	
  BORROWER:

  	
  CANO
  PETROLEUM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Morris B. Smith

  	
   

  
	
   

  	
   

  	
  Morris B. Smith,

  
	
   

  	
   

  	
  Senior Vice President and

  
	
   

  	
   

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
  GUARANTORS:

  	
  SQUARE
  ONE ENERGY, INC.

  
	
   

  	
  LADDER
  COMPANIES, INC.

  
	
   

  	
  W.O.
  ENERGY OF NEVADA, INC.

  
	
   

  	
  WO
  ENERGY, INC.

  
	
   

  	
  PANTWIST,
  LLC

  
	
   

  	
  CANO
  PETRO OF NEW MEXICO, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Each
  by:

  	
   /s/ Morris B. Smith

  	
   

  
	
   

  	
   

  	
  Morris B. Smith,

  
	
   

  	
   

  	
  Vice President and

  
	
   

  	
   

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  W.O.
  OPERATING COMPANY, LTD.

  
	
   

  	
  By:  WO Energy, Inc., its general partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Morris B. Smith

  	
   

  
	
   

  	
   

  	
  Morris B. Smith,

  
	
   

  	
   

  	
  Vice President and

  
	
   

  	
   

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  W.O.
  PRODUCTION COMPANY, LTD.

  
	
   

  	
  By:  WO Energy, Inc., its general partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Morris B. Smith

  	
   

  
	
   

  	
   

  	
  Morris B. Smith,

  
	
   

  	
   

  	
  Vice President and

  
	
   

  	
   

  	
  Chief Financial Officer

  
							

 

 

Signature Page to Consent Agreement

 

 

	
  ADMINISTRATIVE AGENT/

  	
   

  
	
  ISSUING LENDER/LENDER:

  	
  UNION
  BANK OF CALIFORNIA, N.A.,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Randall Osterberg

  	
   

  
	
   

  	
   

  	
  Randall Osterberg

  
	
   

  	
   

  	
  Senior Vice President

  

 

 

Signature Page to Consent Agreement

 

 

	
   

  	
  NATIXIS,
  as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Donovan C. Broussard

  	
   

  
	
   

  	
  Name:

  	
  Donovan
  C. Brossard

  	
   

  
	
   

  	
  Title:

  	
  Managing
  Director

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Liana Tchernysheva

  	
   

  
	
   

  	
  Name:

  	
  Liana
  Tchernysheva

  	
   

  
	
   

  	
  Title:

  	
  Director

  	
   

  
								

 

 

Signature Page to Consent Agreement

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00141-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00141-of-00352.parquet"}]]