EXHIBIT 10.9

 

Execution Version

 

SUBORDINATED GUARANTY AGREEMENT

 

This Subordinated Guaranty Agreement dated as of March 17, 2008 (this
“Guaranty”) is executed by each of the undersigned (individually a “Guarantor”
and collectively, the “Guarantors”), in favor of UnionBanCal Equities, Inc., as
Administrative Agent for the ratable benefit of itself, the Lenders (as defined
below) (together with the Administrative Agent and the Lenders, individually a
“Beneficiary”, and collectively, the “Beneficiaries”).

 

INTRODUCTION

 

A.            This Guaranty is given in connection with that certain
Subordinated Credit Agreement dated as of March 17, 2008 (as it has been or may
be amended, supplemented, restated or otherwise modified from time to time, the
“Credit Agreement”), among Cano Petroleum, Inc., a Delaware corporation (the
“Borrower”), the lenders party thereto from time to time (individually a
“Lender” and collectively, the “Lenders”), and UnionBanCal Equities, Inc. as
administrative agent (“Administrative Agent”) for such Lenders.

 

B.            Each Guarantor is a Subsidiary of the Borrower and will derive
substantial direct and indirect benefit from the transactions contemplated by
the Credit Agreement and the other Loan Documents (as defined in the Credit
Agreement).

 

C.            Each Guarantor is executing and delivering this Guaranty (i) to
induce the Lenders to provide the Advances and the other considerations under
the Credit Agreement, and (ii) intending it to be a legal, valid, binding,
enforceable and continuing obligation of such Guarantor, whether or not such
Guarantor derives any benefit from the Credit Agreement or from any other Loan
Document.

 

NOW, THEREFORE, in consideration of the premises, each Guarantor hereby agrees
as follows:

 

Section 1.         Definitions.  All capitalized terms not otherwise defined in
this Guaranty that are defined in the Credit Agreement shall have the meanings
assigned to such terms by the Credit Agreement.

 

Section 2.         Guaranty.

 

(a)      Each Guarantor hereby absolutely, unconditionally and irrevocably
guarantees the punctual payment and performance, when due, whether at stated
maturity, by acceleration or otherwise, of all Obligations, whether absolute or
contingent and whether for principal, interest (including, without limitation,
interest that but for the existence of a bankruptcy, reorganization or similar
proceeding would accrue), fees, amounts required to be provided as collateral,
indemnities, expenses or otherwise (collectively, the “Guaranteed Obligations”).
Without limiting the generality of the foregoing, each Guarantor’s liability
shall extend to all amounts that constitute part of the Guaranteed Obligations
and would be owed by the Borrower to the Administrative Agent or any Lender
under the Loan Documents and by the Borrower or any of its Subsidiaries but for
the fact that they are unenforceable or not allowable

 

--------------------------------------------------------------------------------

 

due to insolvency or the existence of a bankruptcy, reorganization or similar
proceeding involving the Borrower or such other Subsidiary.

 

(b)      It is the intention of the Guarantors and each Beneficiary that the
amount of the Guaranteed Obligations guaranteed by each Guarantor shall be in,
but not in excess of, the maximum amount permitted by fraudulent conveyance,
fraudulent transfer or similar Legal Requirements applicable to such Guarantor.
Accordingly, notwithstanding anything to the contrary contained in this Guaranty
or in any other agreement or instrument executed in connection with the payment
of any of the Guaranteed Obligations, the amount of the Guaranteed Obligations
guaranteed by a Guarantor under this Guaranty shall be limited to an aggregate
amount equal to the largest amount that would not render such Guarantor’s
obligations hereunder subject to avoidance under Section 548 of the United
States Bankruptcy Code or any comparable provision of any other applicable law.

 

Section 3.         Guaranty Absolute.  Each Guarantor guarantees that the
Guaranteed Obligations will be paid strictly in accordance with the terms of the
Loan Documents, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Administrative Agent or any Lender with respect thereto but subject to
Section 2(b) above.  The obligations of each Guarantor under this Guaranty are
independent of the Guaranteed Obligations or any other obligations of any other
Person under the Loan Documents, and a separate action or actions may be brought
and prosecuted against any Guarantor to enforce this Guaranty, irrespective of
whether any action is brought against the Borrower, any other Guarantor or any
other Person or whether the Borrower, any other Guarantor or any other Person is
joined in any such action or actions. The liability of each Guarantor under this
Guaranty shall be irrevocable, absolute and unconditional irrespective of, and
each Guarantor hereby irrevocably waives any defenses it may now or hereafter
have in any way relating to, any or all of the following:

 

(a)      any lack of validity or enforceability of any Loan Document or any
agreement or instrument relating thereto or any part of the Guaranteed
Obligations being irrecoverable;

 

(b)      any change in the time, manner or place of payment of, or in any other
term of, all or any of the Guaranteed Obligations or any other obligations of
any Person under the Loan Documents, or any other amendment or waiver of or any
consent to departure from any Loan Document, including, without limitation, any
increase in the Guaranteed Obligations resulting from the extension of
additional credit to the Borrower or otherwise;

 

(c)      any taking, exchange, release or non-perfection of any collateral, or
any taking, release or amendment or waiver of or consent to departure from any
other guaranty, for all or any of the Guaranteed Obligations;

 

(d)      any manner of application of collateral, or proceeds thereof, to all or
any of the Guaranteed Obligations, or any manner of sale or other disposition of
any collateral for all or any of the Guaranteed Obligations or any other
obligations of any other Person under the Loan Documents or any other assets of
the Borrower or any of its Subsidiaries;

 

2

--------------------------------------------------------------------------------

 

(e)      any change, restructuring or termination of the corporate structure or
existence of the Borrower or any of its Subsidiaries;

 

(f)       any failure of any Beneficiary to disclose to the Borrower or any
Guarantor any information relating to the business, condition (financial or
otherwise), operations, properties or prospects of any Person now or in the
future known to any Beneficiary (and each Guarantor hereby irrevocably waives
any duty on the part of any Beneficiary to disclose such information);

 

(g)      any signature of any officer of the Borrower or any other Person being
mechanically reproduced in facsimile or otherwise; or

 

(h)      any other circumstance or any existence of or reliance on any
representation by any Beneficiary that might otherwise constitute a defense
available to, or a discharge of, the Borrower, any Guarantor or any other
guarantor, surety or other Person.

 

Section 4.         Continuation and Reinstatement, Etc.  Each Guarantor agrees
that, to the extent that payments of any of the Guaranteed Obligations are made,
or any Lender or the Administrative Agent receives any proceeds of collateral,
and such payments or proceeds or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, or otherwise required to
be repaid, then to the extent of such repayment the Guaranteed Obligations shall
be reinstated and continued in full force and effect as of the date such initial
payment or collection of proceeds occurred.  EACH GUARANTOR SHALL DEFEND AND
INDEMNIFY EACH BENEFICIARY FROM AND AGAINST ANY CLAIM, DAMAGE, LOSS, LIABILITY,
COST OR EXPENSE UNDER THIS SECTION 4 (INCLUDING REASONABLE ATTORNEYS’ FEES AND
EXPENSES) IN THE DEFENSE OF ANY SUCH ACTION OR SUIT INCLUDING SUCH CLAIM,
DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE ARISING AS A RESULT OF THE INDEMNIFIED
BENEFICIARY’S OWN NEGLIGENCE BUT EXCLUDING SUCH CLAIM, DAMAGE, LOSS, LIABILITY,
COST, OR EXPENSE THAT IS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF
COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH INDEMNIFIED BENEFICIARY’S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

 

Section 5.         Waivers and Acknowledgments.

 

(a)      Each Guarantor hereby waives promptness, diligence, presentment, notice
of acceptance and any other notice with respect to any of the Guaranteed
Obligations and this Guaranty and any requirement that any Beneficiary protect,
secure, perfect or insure any Lien or any Property or exhaust any right or take
any action against the Borrower or any other Person or any collateral.

 

(b)      Each Guarantor hereby irrevocably waives any right to revoke this
Guaranty, and acknowledges that this Guaranty is continuing in nature and
applies to all Guaranteed Obligations, whether existing now or in the future.

 

(c)      Each Guarantor acknowledges that it will receive substantial direct and
indirect benefits from the financing arrangements involving the Borrower and its
Subsidiaries

 

3

--------------------------------------------------------------------------------

 

contemplated by the Loan Documents and that the waivers set forth in this
Guaranty are knowingly made in contemplation of such benefits.

 

Section 6.         Subrogation. No Guarantor will exercise any rights that it
may now have or hereafter acquire against the Borrower or any other Person to
the extent that such rights arise from the existence, payment, performance or
enforcement of such Guarantor’s obligations under this Guaranty or any other
Loan Document, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy of any Beneficiary against the Borrower or
any other Person, whether or not such claim, remedy or right arises in equity or
under contract, statute or common law, including, without limitation, the right
to take or receive from the Borrower or any other Person, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim, remedy or right, unless and until
all of the Guaranteed Obligations and any and all other amounts payable by the
Guarantors under this Guaranty shall have been paid in full in cash, all
Commitments shall have expired or terminated, and the Credit Agreement has been
terminated in writing.  If any amount shall be paid to a Guarantor in violation
of the preceding sentence at any time prior to (a) the payment in full in cash
of the Guaranteed Obligations and any and all other amounts payable by the
Guarantors under this Guaranty, and (b) the termination of the Commitments, such
amount shall be held in trust for the benefit of the Beneficiaries and shall
forthwith be paid to the Administrative Agent to be credited and applied to the
Guaranteed Obligations and any and all other amounts payable by the Guarantors
under this Guaranty, whether matured or unmatured, in accordance with the terms
of the Loan Documents.

 

Section 7.         Representations and Warranties.  Each Guarantor hereby
represents and warrants as follows:

 

(a)      There are no conditions precedent to the effectiveness of this
Guaranty.  Such Guarantor benefits from executing this Guaranty.

 

(b)      Such Guarantor has, independently and without reliance upon the
Administrative Agent or any Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Guaranty, and such Guarantor has established adequate means of
obtaining from the Borrower and each other relevant Person on a continuing basis
information pertaining to, and is now and on a continuing basis will be
completely familiar with, the business, condition (financial and otherwise),
operations, properties and prospects of the Borrower and each other relevant
Person.

 

(c)      The obligations of such Guarantor under this Guaranty are the valid,
binding and legally enforceable obligations of such Guarantor, and the execution
and delivery of this Guaranty by such Guarantor has been duly and validly
authorized in all respects by such Guarantor, and the Person who is executing
and delivering this Guaranty on behalf of such Guarantor has full power,
authority and legal right to so do, and to observe and perform all of the terms
and conditions of this Guaranty on such Guarantor’s part to be observed or
performed.

 

Section 8.         Right of Set-Off.  Upon the occurrence and during the
continuance of any Event of Default, any Beneficiary is hereby authorized at any
time, to the fullest extent permitted

 

4

--------------------------------------------------------------------------------

 

by law, to set off and apply any deposits (general or special, time or demand,
provisional or final) and other indebtedness owing by such Beneficiary to the
account of each Guarantor against any and all of the obligations of the
Guarantors under this Guaranty, irrespective of whether or not such Beneficiary
shall have made any demand under this Guaranty and although such obligations may
be contingent and unmatured.  Such Beneficiary shall promptly notify the
affected Guarantor after any such set-off and application is made, provided that
the failure to give such notice shall not affect the validity of such set-off
and application.  The rights of the Beneficiaries under this Section 8 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which any Beneficiary may have.

 

Section 9.         Amendments, Etc.  No amendment or waiver of any provision of
this Guaranty and no consent to any departure by any Guarantor therefrom shall
in any event be effective unless the same shall be in writing and signed by the
affected Guarantor, the Administrative Agent and the Required Lenders, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given; provided that no amendment, waiver or
consent shall, unless in writing and signed by all of the Lenders, (a) other
than to the extent expressly provided in such amendment, waiver or consent,
limit the liability of any Guarantor hereunder (it being understood that waivers
and amendments permitted to be made under the Credit Agreement by the Required
Lenders with respect to any of the underlying obligations guaranteed hereunder
shall not be deemed to limit the liability of any Guarantor within the meaning
of this clause (a)), (b) postpone any date fixed for payment hereunder in
respect of any of the Guaranteed Obligations that is principal of, or interest
on, the Notes or any fees, or (c) change the percentage of the Commitments or of
the aggregate unpaid principal amount of the Notes required to take any action
hereunder.

 

Section 10.             Notices, Etc.  All notices and other communications
provided for hereunder shall be sent in the manner provided for in Section 9.02
of the Credit Agreement and if to a Guarantor, at its address specified on the
signature page hereto and if to the Administrative Agent or any Lender, at its
address specified in or pursuant to the Credit Agreement.  All such notices and
communications shall be effective when delivered, except that notices and
communications to the Administrative Agent shall not be effective until received
by the Administrative Agent.

 

Section 11.             No Waiver: Remedies.  No failure on the part of any
Beneficiary to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.

 

Section 12.             Continuing Guaranty: Assignments under the Credit
Agreement.  This Guaranty is a continuing guaranty and shall (a) remain in full
force and effect until the payment in full of all Guaranteed Obligations and all
other amounts payable under the Loan Documents and the termination of all the
Commitments, (b) be binding upon each Guarantor and its successors and assigns,
and (c) inure to the benefit of and be enforceable by the Administrative Agent
and each Lender, and, in the case of transfers and assignments made in
accordance with the Credit Agreement, transferees and assigns.  Without limiting
the generality of the foregoing clause (c), subject to Section 9.06 of the
Credit Agreement, any Lender may assign or otherwise

 

5

--------------------------------------------------------------------------------

 

transfer all or any portion of its rights and obligations under the Credit
Agreement (including, without limitation, all or any portion of its Commitment,
the Advances owing to it and the Note or Notes held by it) to any other Person,
and such other Person shall thereupon become vested with all the benefits in
respect thereof granted to such Lender herein or otherwise, subject, however, in
all respects to the provisions of the Credit Agreement.  Each Guarantor
acknowledges that upon any Person becoming a Lender, the Administrative Agent in
accordance with the Credit Agreement, such Person shall be entitled to the
benefits hereof.

 

Section 13.             Governing Law.  This Guaranty shall be governed by, and
construed and enforced in accordance with, the laws of the State of Texas.  Each
Guarantor hereby irrevocably submits to the jurisdiction of any Texas state or
federal court sitting in Dallas, Texas in any action or proceeding arising out
of or relating to this Guaranty and the other Loan Documents, and each Guarantor
hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such court.  Each Guarantor hereby
irrevocably waives, to the fullest extent it may effectively do so, any right it
may have to the defense of an inconvenient forum to the maintenance of such
action or proceeding.  Each Guarantor hereby agrees that service of copies of
the summons and complaint and any other process which may be served in any such
action or proceeding may be made by mailing or delivering a copy of such process
to such Guarantor at its address set forth in the Credit Agreement or set forth
on the signature page of this Guaranty.  Each Guarantor agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.  Nothing in this Section shall affect the rights of any
Beneficiary to serve legal process in any other manner permitted by the law or
affect the right of any Beneficiary to bring any action or proceeding against
any Guarantor or its Property in the courts of any other jurisdiction.

 

Section 14.             INDEMNIFICATION.  EACH GUARANTOR SHALL INDEMNIFY EACH OF
THE BENEFICIARIES, AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS FROM, AND DISCHARGE, RELEASE, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY
AND ALL LIABILITIES, OBLIGATIONS, LOSSES, CLAIMS, EXPENSES, OR DAMAGES OF ANY
KIND OR NATURE WHATSOEVER TO WHICH ANY OF THEM MAY BECOME SUBJECT RELATING TO OR
ARISING OUT OF THIS GUARANTY, INCLUDING ANY LIABILITIES, OBLIGATIONS, LOSSES,
CLAIMS, EXPENSES, OR DAMAGES WHICH ARISE OUT OF OR RESULT FROM (A) ANY ACTUAL OR
PROPOSED USE BY THE BORROWER, ANY GUARANTOR OR ANY AFFILIATE OF THE BORROWER OR
ANY GUARANTOR OF THE PROCEEDS OF THE ADVANCES, (B) ANY BREACH BY THE BORROWER OR
ANY GUARANTOR OF ANY PROVISION OF THE CREDIT AGREEMENT OR ANY OTHER LOAN
DOCUMENT, (C) ANY INVESTIGATION, LITIGATION OR OTHER PROCEEDING (INCLUDING ANY
THREATENED INVESTIGATION OR PROCEEDING) RELATING TO THE FOREGOING, (D) ANY
ENVIRONMENTAL CLAIM OR REQUIREMENT OF ENVIRONMENTAL LAWS CONCERNING OR RELATING
TO THE PRESENT OR PREVIOUSLY-OWNED OR OPERATED PROPERTIES OF THE BORROWER, ANY
GUARANTOR OR THE OPERATIONS OR BUSINESS, OF THE BORROWER OR ANY GUARANTOR
INCLUDING ANY MATTERS DISCLOSED WITHIN THE CREDIT AGREEMENT, OR (E) ANY
ENVIRONMENTAL CLAIM OR

 

6

--------------------------------------------------------------------------------

 

REQUIREMENT OF ENVIRONMENTAL LAWS CONCERNING OR RELATED TO THE BORROWER’S OR ANY
GUARANTOR’S PROPERTIES AND EACH GUARANTOR SHALL REIMBURSE THE BENEFICIARIES AND
THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS, UPON DEMAND FOR ANY
REASONABLE OUT-OF-POCKET EXPENSES (INCLUDING REASONABLE OUTSIDE LEGAL FEES)
INCURRED IN CONNECTION WITH ANY SUCH INVESTIGATION, LITIGATION OR OTHER
PROCEEDING; AND EXPRESSLY INCLUDING ANY SUCH LOSSES, LIABILITIES, CLAIMS,
DAMAGES, OR EXPENSE INCURRED BY REASON OF THE PERSON BEING INDEMNIFIED’S OWN
NEGLIGENCE, BUT EXCLUDING ANY SUCH LOSSES, LIABILITIES, CLAIMS, DAMAGES OR
EXPENSES THAT IS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF
COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH INDEMNIFIED PERSON’S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.

 

Section 15.             WAIVER OF JURY TRIAL.  EACH GUARANTOR HEREBY
ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED BY AND HAS CONSULTED WITH COUNSEL OF
ITS CHOICE, AND HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS GUARANTY, ANY OTHER LOAN DOCUMENT, OR ANY OF
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

Section 16.             Additional Guarantors.  Pursuant to Section 6.15 of the
Credit Agreement, each Subsidiary of the Borrower that was not in existence on
the date of the Credit Agreement is required to enter into this Guaranty as a
Guarantor upon becoming a Subsidiary.  After the date hereof, upon execution and
delivery after the date hereof by the Administrative Agent and such Subsidiary
of an instrument in the form of Annex 1, such Subsidiary shall become a
Guarantor hereunder with the same force and effect as if originally named as a
Guarantor herein.  The execution and delivery of any instrument adding an
additional Guarantor as a party to this Guaranty shall not require the consent
of any other Guarantor hereunder.  The rights and obligations of each Guarantor
hereunder shall remain in full force and effect notwithstanding the addition of
any new Guarantor as a party to this Guaranty.

 

Section 17.             Subordination and Intercreditor Agreement.  Reference is
made to the Subordination and Intercreditor Agreement dated of even date
herewith (as amended, restated, supplemented or otherwise modified from time to
time, the “Subordination and Intercreditor Agreement”), among Union Bank of
California, N.A., as Senior Agent, and UnionBanCal Equities, Inc., as
Subordinated Agent, and certain other persons, party or that may become party
thereto from time to time.  Notwithstanding anything herein to the contrary,
this Guaranty, the obligations of the Guarantors hereunder and the rights and
remedies of the Beneficiaries hereunder are subject to the provisions of the
Subordination and Intercreditor Agreement.  In the event of any conflict between
the terms of the Subordination and Intercreditor Agreement and this Guaranty,
the terms of the Subordination and Intercreditor Agreement shall govern and
control.

 

7

--------------------------------------------------------------------------------

 

Section 18.             NOTICE OF FINAL AGREEMENTS.  PURSUANT TO SECTION 26.02
OF THE TEXAS BUSINESS AND COMMERCE CODE, AN AGREEMENT IN WHICH THE AMOUNT
INVOLVED IN AGREEMENT EXCEEDS $50,000 IN VALUE IS NOT ENFORCEABLE UNLESS THE
AGREEMENT IS IN WRITING AND SIGNED BY THE PARTY TO BE BOUND OR THAT PARTY’S
AUTHORIZED REPRESENTATIVE.

 

THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO AN AGREEMENT SUBJECT TO THE
PRECEDING PARAGRAPH SHALL BE DETERMINED SOLELY FROM THE WRITTEN AGREEMENT, AND
ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED INTO
THIS GURANTY.  THIS GUARANTY AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.

 

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

 

[Remainder of this page intentionally left blank.]

 

8

--------------------------------------------------------------------------------

 

Each Guarantor has caused this Guaranty to be duly executed as of the date first
above written.

 

Address for each Guarantor:

GUARANTORS:

c/o Cano Petroleum, Inc.

 

801 Cherry Street, Suite 3200

LADDER COMPANIES, INC.

Fort Worth, Texas 76102

SQUARE ONE ENERGY, INC.

Attention: Morris B. Smith, CFO

W.O. ENERGY OF NEVADA, INC.

Facsimile: (817) 334-0222

WO ENERGY, INC.

 

CANO PETRO OF NEW MEXICO, INC.

 

PANTWIST, LLC

 

 

 

 

 

Each by:

/s/ Morris B. Smith

 

 

Morris B. Smith

 

 

Vice President

 

 

 

 

W.O. OPERATING COMPANY, LTD.

 

By: WO Energy, Inc., its general partner

 

 

 

 

 

  By: :

/s/ Morris B. Smith

 

 

Morris B. Smith

 

 

Vice President

 

 

 

 

W.O. PRODUCTION COMPANY, LTD.

 

By: WO Energy, Inc., its general partner

 

 

 

 

 

  By:

/s/ Morris B. Smith

 

 

Morris B. Smith

 

 

Vice President

 

 

Signature Page to Subordinated Guaranty Agreement

 

--------------------------------------------------------------------------------

 

Execution Version

 

Annex 1 to the

Subordinated Guaranty Agreement

 

SUPPLEMENT NO.          dated as of                             (the
“Supplement”), to the Subordinated Guaranty Agreement dated as of March       ,
2008 (as amended, supplemented or otherwise modified from time to time, the
“Guaranty Agreement”), among each of the subsidiaries party thereto (each such
subsidiary individually, a “Guarantor” and collectively, the “Guarantors”) of
CANO PETROLEUM, INC., a Delaware corporation (the “Borrower”) in favor of
UNIONBANCAL EQUITIES, INC., as Administrative Agent (the “Administrative Agent”)
for the benefit of the Beneficiaries (as defined in the Guaranty Agreement).

 

A.            Reference is made to the Subordinated Credit Agreement dated as of
March       , 2008 (as amended, supplemented or otherwise modified from time to
time, the “Credit Agreement”), among the Borrower, the lenders from time to time
party thereto (the “Lenders”), and the Administrative Agent.

 

B.            Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Guaranty Agreement and the
Credit Agreement.

 

C.            The Guarantors have entered into the Guaranty Agreement in order
to induce the Lenders to make Advances.  Pursuant to Section 6.15 of the Credit
Agreement, the Subsidiaries of the Borrower are required to enter into the
Guaranty Agreement as Guarantors.  Section 16 of the Guaranty Agreement provides
that additional Subsidiaries of the Borrower may become Guarantors under the
Guaranty Agreement by execution and delivery of an instrument in the form of
this Supplement.  The undersigned Subsidiary of the Borrower (the “New
Guarantor”) is executing this Supplement in accordance with the requirements of
the Credit Agreement to become a Guarantor under the Guaranty Agreement.

 

Accordingly, the Administrative Agent and the New Guarantor agree as follows:

 

SECTION 1.     In accordance with Section 16 of the Guaranty Agreement, the New
Guarantor by its signature below becomes a Guarantor under the Guaranty
Agreement with the same force and effect as if originally named therein as a
Guarantor and the New Guarantor hereby (a) agrees to all the terms and
provisions of the Guaranty Agreement applicable to it as a Guarantor thereunder
and (b) represents and warrants that the representations and warranties made by
it as a Guarantor thereunder are true and correct in all material respects on
and as of the date hereof.  Each reference to a “Guarantor” in the Guaranty
Agreement shall be deemed to include the New Guarantor.  The Guaranty Agreement
is hereby incorporated herein by reference.

 

SECTION 2.     The New Guarantor represents and warrants to the Administrative
Agent and the other Beneficiaries that this Supplement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms (subject to
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors’ rights generally and subject, as to enforceability,

 

1

--------------------------------------------------------------------------------

 

to equitable principles of general application (regardless of whether
enforcement is sought in a proceeding in equity or at law)).

 

SECTION 3.     This Supplement may be executed in counterparts, each of which
shall constitute an original, but all of which when taken together shall
constitute a single contract.  This Supplement shall become effective when the
Administrative Agent shall have received counterparts of this Supplement that,
when taken together, bear the signatures of the New Guarantor and the
Administrative Agent. Delivery of an executed signature page to this Supplement
by fax transmission shall be as effective as delivery of a manually executed
counterpart of this Supplement.

 

SECTION 4.     Except as expressly supplemented hereby, the Guaranty Agreement
shall remain in full force and effect.

 

SECTION 5.     THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.  The New Guarantor hereby
irrevocably submits to the jurisdiction of any Texas state or federal court
sitting in Dallas, Texas in any action or proceeding arising out of or relating
to this Supplement or the Guaranty Agreement and the other Loan Documents, and
the New Guarantor hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined in such court.  The New
Guarantor hereby irrevocably waives, to the fullest extent it may effectively do
so, any right it may have to the defense of an inconvenient forum to the
maintenance of such action or proceeding.  The New Guarantor hereby agrees that
service of copies of the summons and complaint and any other process which may
be served in any such action or proceeding may be made by mailing or delivering
a copy of such process to such Guarantor at its address set forth on the
signature page hereof.  The New Guarantor agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law. 
Nothing in this Section shall affect the rights of any Beneficiary to serve
legal process in any other manner permitted by the law or affect the right of
any Beneficiary to bring any action or proceeding against the New Guarantor or
its Property in the courts of any other jurisdiction.

 

SECTION 6.     In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Guaranty Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision hereof in a particular jurisdiction shall not in and of itself affect
the validity of such provision in any other jurisdiction).  The parties hereto
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.

 

SECTION 7.     All communications and notices hereunder shall be in writing and
given as provided in Section 10 of the Guaranty Agreement.  All communications
and notices hereunder to the New Guarantor shall be given to it at the address
set forth under its signature below.

 

2

--------------------------------------------------------------------------------

 

SECTION 8.     The New Guarantor agrees to reimburse the Administrative Agent
for its reasonable out-of-pocket expenses in connection with this Supplement,
including the fees, disbursements and other charges of counsel for the
Administrative Agent.

 

SECTION 9.     PURSUANT TO SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE
CODE, AN AGREEMENT IN WHICH THE AMOUNT INVOLVED IN AGREEMENT EXCEEDS $50,000 IN
VALUE IS NOT ENFORCEABLE UNLESS THE AGREEMENT IS IN WRITING AND SIGNED BY THE
PARTY TO BE BOUND OR THAT PARTY’S AUTHORIZED REPRESENTATIVE.

 

THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO AN AGREEMENT SUBJECT TO THE
PRECEDING PARAGRAPH SHALL BE DETERMINED SOLELY FROM THE WRITTEN AGREEMENT, AND
ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED INTO
THIS GURANTY.  THIS SUPPLEMENT, THE GUARANTY AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES WITH RESPECT TO THE
SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

 

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

 

IN WITNESS WHEREOF, the New Guarantor and the Administrative Agent have duly
executed this Supplement to the Guaranty Agreement as of the day and year first
above written.

 

 

[Name of New Guarantor]

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

Address of Guarantor:

 

 

 

 

 

 

 

 

 

 

 

ADMINISTRATIVE AGENT:

 

 

 

UNIONBANCAL EQUITIES, INC., as
Administrative Agent

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

3

--------------------------------------------------------------------------------

 

 

By:

 

 

Name:

 

 

Title:

 

 

4

--------------------------------------------------------------------------------