**Exhibit 10.10**

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**SUBORDINATED GUARANTY AGREEMENT**

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

 

**INTRODUCTION**

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

 

B.                                     EachGuarantor is a subsidiary of the Borrower and will derive substantial directand indirect benefit from the transactions contemplated by the Credit Agreementand the other Loan Documents (as defined in the Credit Agreement).

 

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

 

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

 

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

 

Section 2.                                            Guaranty.

 

(a)                                  EachGuarantor hereby absolutely, unconditionally and irrevocably guarantees thepunctual payment and performance, when due, whether at stated maturity, byacceleration or otherwise, of all Obligations, whether absolute or contingentand whether for principal, interest (including, without limitation, interestthat but for the existence of a bankruptcy, reorganization or similarproceeding would accrue), fees, amounts required to be provided as collateral,indemnities, expenses or otherwise (collectively, the “GuaranteedObligations”). Without limiting the generality of the foregoing, each Guarantor’sliability shall extend to all amounts that constitute part of the GuaranteedObligations and would be owed by the Borrower to the Administrative Agent orany Lender under the Loan Documents and by the Borrower or any of itsSubsidiaries but for the fact that they are unenforceable or not allowable dueto insolvency or the existence of a bankruptcy, reorganization or similarproceeding involving the Borrower or such other Subsidiary.

 

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

 

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

 

(a)                                  anylack of validity or enforceability of any Loan Document or any agreement orinstrument relating thereto or any part of the Guaranteed Obligations beingirrecoverable;

 

(b)                                 anychange in the time, manner or place of payment of, or in any other term of, allor any of the Guaranteed Obligations or any other obligations of any Personunder the Loan Documents, or any other amendment or waiver of or any consent todeparture from any Loan Document, including, without limitation, any increasein the Guaranteed Obligations resulting from the extension of additional creditto the Borrower or otherwise;

 

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

 

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

 

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

 

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

 

(g)                                 anysignature of any officer of the Borrower or any other Person being mechanicallyreproduced in facsimile or otherwise; or

 

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

 

Section 4.                                            Continuationand Reinstatement, Etc.  EachGuarantor agrees that, to the extent that payments of any of the GuaranteedObligations are made, or any Lender or the Administrative Agent receives anyproceeds of collateral, and such payments or proceeds or any part thereof aresubsequently invalidated, declared to be fraudulent or preferential, set aside,or otherwise required to be repaid, then to the extent of such repayment theGuaranteed Obligations shall be reinstated and continued in full force andeffect as of the date such initial payment or collection of proceedsoccurred.  **EACH GUARANTOR SHALL DEFEND AND INDEMNIFY EACH BENEFICIARY FROM ANDAGAINST ANY CLAIM, DAMAGE, LOSS, LIABILITY, COST OR EXPENSE UNDER THIS SECTION 4(INCLUDING REASONABLE ATTORNEYS’ FEES AND EXPENSES) IN THE DEFENSE OF ANY SUCHACTION OR SUIT INCLUDING SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSEARISING AS A RESULT OF THE INDEMNIFIED BENEFICIARY’S OWN NEGLIGENCE BUTEXCLUDING SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE THAT IS FOUNDIN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TOHAVE RESULTED FROM SUCH INDEMNIFIED BENEFICIARY’S GROSS NEGLIGENCE OR WILLFULMISCONDUCT.**

 

Section 5.                                            Waiversand Acknowledgments.

 

(a)                                  EachGuarantor hereby waives promptness, diligence, presentment, notice ofacceptance and any other notice with respect to any of the GuaranteedObligations and this Guaranty and any requirement that any Beneficiary protect,secure, perfect or insure any Lien or any Property or exhaust any right or takeany action against the Borrower or any other Person or any collateral.

 

(b)                                 EachGuarantor hereby irrevocably waives any right to revoke this Guaranty, andacknowledges that this Guaranty is continuing in nature and applies to allGuaranteed Obligations, whether existing now or in the future.

 

(c)                                  EachGuarantor acknowledges that it will receive substantial direct and indirectbenefits from the financing arrangements involving the Borrower and itsSubsidiaries contemplated by the Loan Documents and that the waivers set forthin this Guaranty are knowingly made in contemplation of such benefits.

 

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Section 6.                                            Subrogation.No Guarantor will exercise any rights that it may now have or hereafter acquireagainst the Borrower or any other Person to the extent that such rights arisefrom the existence, payment, performance or enforcement of such Guarantor’sobligations under this Guaranty or any other Loan Document, including, withoutlimitation, any right of subrogation, reimbursement, exoneration, contributionor indemnification and any right to participate in any claim or remedy of anyBeneficiary against the Borrower or any other Person, whether or not suchclaim, remedy or right arises in equity or under contract, statute or commonlaw, including, without limitation, the right to take or receive from theBorrower or any other Person, directly or indirectly, in cash or other propertyor by set-off or in any other manner, payment or security on account of suchclaim, remedy or right, unless and until all of the Guaranteed Obligations andany and all other amounts payable by the Guarantors under this Guaranty shallhave been paid in full in cash, all Commitments shall have expired orterminated, and the Credit Agreement has been terminated in writing.  If any amount shall be paid to a Guarantor inviolation of the preceding sentence at any time prior to (a) the paymentin full in cash of the Guaranteed Obligations and any and all other amountspayable by the Guarantors under this Guaranty, and (b) the termination ofthe Commitments, such amount shall be held in trust for the benefit of theBeneficiaries and shall forthwith be paid to the Administrative Agent to becredited and applied to the Guaranteed Obligations and any and all otheramounts payable by the Guarantors under this Guaranty, whether matured orunmatured, in accordance with the terms of the Loan Documents.

 

Section 7.                                            Representationsand Warranties.  Each Guarantor herebyrepresents and warrants as follows:

 

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

 

(b)                                 SuchGuarantor has, independently and without reliance upon the Administrative Agentor any Lender and based on such documents and information as it has deemedappropriate, made its own credit analysis and decision to enter into thisGuaranty, and such Guarantor has established adequate means of obtaining fromthe Borrower and each other relevant Person on a continuing basis informationpertaining to, and is now and on a continuing basis will be completely familiarwith, the business, condition (financial and otherwise), operations, propertiesand prospects of the Borrower and each other relevant Person.

 

(c)                                  Theobligations of such Guarantor under this Guaranty are the valid, binding andlegally enforceable obligations of such Guarantor, and the execution anddelivery of this Guaranty by such Guarantor has been duly and validly authorizedin all respects by such Guarantor, and the Person who is executing anddelivering this Guaranty on behalf of such Guarantor has full power, authorityand legal right to so do, and to observe and perform all of the terms andconditions of this Guaranty on such Guarantor’s part to be observed orperformed.

 

Section 8.                                            Right ofSet-Off.  Upon the occurrence andduring the continuance of any Event of Default, any Beneficiary is herebyauthorized at any time, to the fullest extent permitted by law, to set off andapply any deposits (general or special, time or demand, provisional or final)and other indebtedness owing by such Beneficiary to the account of eachGuarantor against any and all of the obligations of the Guarantors under thisGuaranty, irrespective of whether or 

 

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not such Beneficiary shall have made any demand underthis Guaranty and although such obligations may be contingent andunmatured.  Such Beneficiary shallpromptly notify the affected Guarantor after any such set-off and applicationis made, provided that the failure to give such notice shall not affect thevalidity of such set-off and application. The rights of the Beneficiaries under this Section 8 are inaddition to other rights and remedies (including, without limitation, otherrights of set-off) which any Beneficiary may have.

 

Section 9.                                            Amendments,Etc.  No amendment or waiver of anyprovision of this Guaranty and no consent to any departure by any Guarantortherefrom shall in any event be effective unless the same shall be in writingand signed by the affected Guarantor, the Administrative Agent and the MajorityLenders, and then such waiver or consent shall be effective only in thespecific instance and for the specific purpose for which given; providedthat no amendment, waiver or consent shall, unless in writing and signed by allof the Lenders, (a) other than to the extent expressly provided in suchamendment, waiver or consent, limit the liability of any Guarantor hereunder (itbeing understood that waivers and amendments permitted to be made under theCredit Agreement by the Majority Lenders****with respectto any of the underlying obligations guaranteed hereunder shall not be deemedto 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 theGuaranteed Obligations that is principal of, or interest on, the Notes or anyfees, or (c) change the percentage of the Commitments or of the aggregateunpaid principal amount of the Notes required to take any action hereunder.

 

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

 

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

 

Section 12.                                      ContinuingGuaranty: Assignments under the Credit Agreement.  This Guaranty is a continuing guaranty andshall (a) remain in full force and effect until the payment in full of allGuaranteed Obligations and all other amounts payable under the Loan Documents andthe termination of all the Commitments, (b) be binding upon each Guarantorand its successors and assigns, and (c) inure to the benefit of and beenforceable by the Administrative Agent and each Lender, and, in the case oftransfers and assignments made in accordance with the Credit Agreement,transferees and assigns.  Withoutlimiting the generality of the foregoing clause (c), subject to Section 9.06of the Credit Agreement, any Lender may assign or otherwise transfer all or anyportion of its rights and obligations under the Credit Agreement (including,without limitation, all or any portion of its Commitment, the Advances owing toit and the Note or Notes held by it) to any other Person, and such other Personshall thereupon become vested 

 

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with all the benefits in respect thereof granted tosuch Lender herein or otherwise, subject, however, in all respects to theprovisions of the Credit Agreement.  EachGuarantor acknowledges that upon any Person becoming a Lender, theAdministrative Agent in accordance with the Credit Agreement, such Person shallbe entitled to the benefits hereof.

 

Section 13.                                      Governing Law.  This Guaranty shall be governed by, andconstrued and enforced in accordance with, the laws of the State of Texas.  Each Guarantor hereby irrevocably submits tothe jurisdiction of any Texas state or federal court sitting in Dallas, Texasin any action or proceeding arising out of or relating to this Guaranty and theother Loan Documents, and each Guarantor hereby irrevocably agrees that allclaims in respect of such action or proceeding may be heard and determined insuch court.  Each Guarantor herebyirrevocably waives, to the fullest extent it may effectively do so, any rightit may have to the defense of an inconvenient forum to the maintenance of suchaction or proceeding.  Each Guarantorhereby agrees that service of copies of the summons and complaint and any otherprocess which may be served in any such action or proceeding may be made bymailing or delivering a copy of such process to such Guarantor at its addressset forth in the Credit Agreement or set forth on the signature page ofthis Guaranty.  Each Guarantor agreesthat a final judgment in any such action or proceeding shall be conclusive andmay be enforced in other jurisdictions by suit on the judgment or in any othermanner provided by law.  Nothing in this Section shallaffect the rights of any Beneficiary to serve legal process in any other mannerpermitted by the law or affect the right of any Beneficiary to bring any actionor proceeding against any Guarantor or its Property in the courts of any otherjurisdiction.

 

Section 14.                                      **INDEMNIFICATION.  EACH GUARANTOR SHALL INDEMNIFY EACH OF THE BENEFICIARIES,AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS FROM, ANDDISCHARGE, RELEASE, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALLLIABILITIES, OBLIGATIONS, LOSSES, CLAIMS, EXPENSES, OR DAMAGES OF ANY KIND ORNATURE WHATSOEVER TO WHICH ANY OF THEM MAY BECOME SUBJECT RELATING TO ORARISING OUT OF THIS GUARANTY, INCLUDING ANY LIABILITIES, OBLIGATIONS, LOSSES,CLAIMS, EXPENSES, OR DAMAGES WHICH ARISE OUT OF OR RESULT FROM (A) ANYACTUAL OR PROPOSED USE BY THE BORROWER, ANY GUARANTOR OR ANY AFFILIATE OF THEBORROWER OR ANY GUARANTOR OF THE PROCEEDS OF THE ADVANCES, (B) ANY BREACHBY THE BORROWER OR ANY GUARANTOR OF ANY PROVISION OF THE CREDIT AGREEMENT ORANY OTHER LOAN DOCUMENT, (C) ANY INVESTIGATION, LITIGATION OR OTHERPROCEEDING (INCLUDING ANY THREATENED INVESTIGATION OR PROCEEDING) RELATING TOTHE FOREGOING, (D) ANY ENVIRONMENTAL CLAIM OR REQUIREMENT OF ENVIRONMENTALLAWS CONCERNING OR RELATING TO THE PRESENT OR PREVIOUSLY-OWNED OR OPERATEDPROPERTIES OF THE BORROWER, ANY GUARANTOR OR THE OPERATIONS OR BUSINESS, OF THEBORROWER OR ANY GUARANTOR INCLUDING ANY MATTERS DISCLOSED WITHIN THE CREDITAGREEMENT, OR (E) ANY ENVIRONMENTAL CLAIM OR REQUIREMENT OF ENVIRONMENTALLAWS CONCERNING OR RELATED TO THE BORROWER’S OR ANY GUARANTOR’S PROPERTIES ANDEACH GUARANTOR SHALL REIMBURSE THE BENEFICIARIES AND THEIR**

 

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**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 SUCHINVESTIGATION, LITIGATION OR OTHER PROCEEDING; AND EXPRESSLY INCLUDING ANY SUCHLOSSES, LIABILITIES, CLAIMS, DAMAGES, OR EXPENSE INCURRED BY REASON OF THEPERSON 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 ACOURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH INDEMNIFIED PERSON’SGROSS NEGLIGENCE OR WILLFUL MISCONDUCT.**

 

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

 

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

 

Section 17.                                      Subordinationand Intercreditor Agreement. Reference is made to the Subordination and Intercreditor Agreement datedas of December 17, 2008 (as amended, restated, supplemented or otherwisemodified 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 thecontrary, this Guaranty, the obligations of the Guarantors hereunder and therights and remedies of the Beneficiaries hereunder are subject to theprovisions of the Subordination and Intercreditor Agreement.  In the event of any conflict between the termsof the Subordination and Intercreditor Agreement and this Guaranty, the termsof the Subordination and Intercreditor Agreement shall govern and control.

 

Section 18.                                      **NOTICE OF FINAL AGREEMENTS.  PURSUANTTO SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE, AN AGREEMENT INWHICH THE AMOUNT INVOLVED IN AGREEMENT EXCEEDS $50,000 IN VALUE IS NOTENFORCEABLE UNLESS THE AGREEMENT IS IN**

 

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**WRITING AND SIGNED BY THE PARTY TO BEBOUND OR THAT PARTY’S AUTHORIZED REPRESENTATIVE.**

 

**THE RIGHTS AND OBLIGATIONS OF THE PARTIES TOAN AGREEMENT SUBJECT TO THE PRECEDING PARAGRAPH SHALL BE DETERMINED SOLELY FROMTHE WRITTEN AGREEMENT, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARESUPERSEDED BY AND MERGED INTO THIS GURANTY. THIS GUARANTY AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENTAMONG THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BECONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORALAGREEMENTS OF THE PARTIES.**

 

**THERE ARE NO UNWRITTEN ORALAGREEMENTS AMONG THE PARTIES.**

 

**[Remainder of this page intentionallyleft blank.]**

 

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Each Guarantorhas caused this Guaranty to be duly executed as of the date first abovewritten.

 
| Address for each Guarantor: | ** ** | **GUARANTORS:**                                   |
|--------------------------------------------|------------|---------------------------------------------------|
| c/o Cano Petroleum, Inc.              |       |                                              |
| 801 Cherry Street, Suite 3200         | ** ** | **SQUARE ONE ENERGY, INC.**                       |
| Forth Worth, Texas 76102                   | ** ** | **LADDER COMPANIES, INC.**                        |
| Attention: Ben Daitch, CFO                 | ** ** | **W.O. ENERGY OF NEVADA, INC.**                   |
| Facsimile: (817) 334-0222                  | ** ** | **WO ENERGY, INC.**                               |
|                                       | ** ** | **CANO PETRO OF NEW MEXICO, INC.**                |
|                                       | ** ** | ** **                                        |
|                                       | ** ** | ** **                                        |
|                                       | ** ** | Each By:                                          |   /s/ Benjamin Daitch |
|                                       | ** ** |                                              |   Benjamin Daitch |
|                                       | ** ** |                                              |   Vice President and Chief Financial |
|                                       | ** ** |                                              |   Officer |
|                                       | ** ** | ** **                                        |
|                                       | ** ** | **W.O. OPERATING COMPANY, LTD.**                  |
|                                       | ** ** | **W.O. PRODUCTION COMPANY, LTD.**                 |
|                                       | ** ** | Each By: WO Energy, Inc., as general partner |
|                                       | ** ** |                                              |
|                                       | ** ** |                                              |
|                                       | ** ** | By:                                               |  /s/ Benjamin Daitch |
|                                       | ** ** |  Benjamin Daitch                             |
|                                       | ** ** |  Vice President and Chief Financial          |
|                                       | ** ** |  Officer                                     |
|                                            |            |                                                   |  |  |

 

Signature Page to Subordinated GuarantyAgreement

 

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Annex 1 to theSubordinated Guaranty Agreement

 

SUPPLEMENTNO.          dated as of                             (the*“Supplement*”),to the Subordinated Guaranty Agreement dated as of December 17, 2008 (asamended, supplemented or otherwise modified from time to time, the *“Guaranty Agreement”*),among each of the subsidiaries party thereto (each such subsidiaryindividually, a *“Guarantor”* and collectively, the *“Guarantors”*) of CANO PETROLEUM,INC., a Delaware corporation (the *“Borrower”*) in favor of UNIONBANCALEQUITIES, INC., as Administrative Agent (the *“Administrative Agent”*) for thebenefit of the Beneficiaries (as defined in the Guaranty Agreement).

 

A.                                   Referenceis made to the Subordinated Credit Agreement dated as of December 17, 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.                                     Capitalizedterms used herein and not otherwise defined herein shall have the meaningsassigned to such terms in the Guaranty Agreement and the Credit Agreement.

 

C.                                     TheGuarantors have entered into the Guaranty Agreement in order to induce theLenders to make Advances.  Pursuant to Section 6.15of the Credit Agreement, the Subsidiaries of the Borrower are required to enterinto the Guaranty Agreement as Guarantors. Section 16 of the Guaranty Agreement provides that additionalSubsidiaries of the Borrower may become Guarantors under the Guaranty Agreementby execution and delivery of an instrument in the form of this Supplement.  The undersigned Subsidiary of the Borrower(the *“NewGuarantor”*) is executing this Supplement in accordance with therequirements of the Credit Agreement to become a Guarantor under the GuarantyAgreement.

 

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

 

SECTION 1.                                Inaccordance with Section 16 of the Guaranty Agreement, the New Guarantor byits signature below becomes a Guarantor under the Guaranty Agreement with thesame force and effect as if originally named therein as a Guarantor and the NewGuarantor hereby (a) agrees to all the terms and provisions of theGuaranty Agreement applicable to it as a Guarantor thereunder and (b) representsand warrants that the representations and warranties made by it as a Guarantorthereunder are true and correct in all material respects on and as of the datehereof.  Each reference to a “Guarantor”in the Guaranty Agreement shall be deemed to include the New Guarantor.  The Guaranty Agreement is hereby incorporatedherein by reference.

 

SECTION 2.                                TheNew Guarantor represents and warrants to the Administrative Agent and the otherBeneficiaries that this Supplement has been duly authorized, executed anddelivered by it and constitutes its legal, valid and binding obligation,enforceable against it in accordance with its terms (subject to applicablebankruptcy, reorganization, insolvency, moratorium or similar laws affectingcreditors’ rights generally and subject, as to enforceability, 

 

Annex 1 to Subordinated Guaranty Agreement

 

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to equitable principlesof general application (regardless of whether enforcement is sought in aproceeding in equity or at law)).

 

SECTION 3.                                ThisSupplement may be executed in counterparts, each of which shall constitute anoriginal, but all of which when taken together shall constitute a singlecontract.  This Supplement shall becomeeffective when the Administrative Agent shall have received counterparts ofthis Supplement that, when taken together, bear the signatures of the NewGuarantor and the Administrative Agent. Delivery of an executed signature page tothis Supplement by fax transmission shall be as effective as delivery of amanually executed counterpart of this Supplement.

 

SECTION 4.                                Exceptas expressly supplemented hereby, the Guaranty Agreement shall remain in fullforce and effect.

 

SECTION 5.                                THISSUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,THE LAWS OF THE STATE OF TEXAS.  The NewGuarantor hereby irrevocably submits to the jurisdiction of any Texas state orfederal court sitting in Dallas, Texas in any action or proceeding arising outof or relating to this Supplement or the Guaranty Agreement and the other LoanDocuments, and the New Guarantor hereby irrevocably agrees that all claims inrespect of such action or proceeding may be heard and determined in suchcourt.  The New Guarantor herebyirrevocably waives, to the fullest extent it may effectively do so, any rightit may have to the defense of an inconvenient forum to the maintenance of suchaction or proceeding.  The New Guarantorhereby agrees that service of copies of the summons and complaint and any otherprocess which may be served in any such action or proceeding may be made bymailing or delivering a copy of such process to such Guarantor at its addressset forth on the signature page hereof. The New Guarantor agrees that a final judgment in any such action orproceeding shall be conclusive and may be enforced in other jurisdictions bysuit on the judgment or in any other manner provided by law.  Nothing in this Section shall affect therights of any Beneficiary to serve legal process in any other manner permittedby the law or affect the right of any Beneficiary to bring any action orproceeding against the New Guarantor or its Property in the courts of any otherjurisdiction.

 

SECTION 6.                                Incase any one or more of the provisions contained in this Supplement should beheld invalid, illegal or unenforceable in any respect, the validity, legalityand enforceability of the remaining provisions contained herein and in theGuaranty Agreement shall not in any way be affected or impaired thereby (itbeing understood that the invalidity of a particular provision hereof in aparticular jurisdiction shall not in and of itself affect the validity of suchprovision in any other jurisdiction). The parties hereto shall endeavor in good-faith negotiations to replacethe invalid, illegal or unenforceable provisions with valid provisions theeconomic effect of which comes as close as possible to that of the invalid,illegal or unenforceable provisions.

 

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

 

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SECTION 8.                                TheNew Guarantor agrees to reimburse the Administrative Agent for its reasonableout-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 BUSINESSAND COMMERCE CODE, AN AGREEMENT IN WHICH THE AMOUNT INVOLVED IN AGREEMENTEXCEEDS $50,000 IN VALUE IS NOT ENFORCEABLE UNLESS THE AGREEMENT IS IN WRITINGAND SIGNED BY THE PARTY TO BE BOUND OR THAT PARTY’S AUTHORIZED REPRESENTATIVE.**

 

**THE RIGHTS AND OBLIGATIONS OF THE PARTIES TOAN AGREEMENT SUBJECT TO THE PRECEDING PARAGRAPH SHALL BE DETERMINED SOLELY FROMTHE WRITTEN AGREEMENT, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARESUPERSEDED BY AND MERGED INTO THIS GURANTY. THIS SUPPLEMENT, THE GUARANTY AGREEMENT AND THE OTHER LOAN DOCUMENTSREPRESENT THE FINAL AGREEMENT AMONG THE PARTIES WITH RESPECT TO THE SUBJECTMATTER 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 WITNESSWHEREOF, the New Guarantor and the Administrative Agent have duly executed thisSupplement to the Guaranty Agreement as of the day and year first abovewritten.

 
|   |   | [Name of New Guarantor] |
|--------|--------|-------------------------|
|   |   |                    |
|   |   |                    |
|   |   | By:                     |   |
|   |   | Name:                   |   |
|   |   | Title:                  |   |
|   |   |                    |
|   |   |                    | AddressofGuarantor: |
|   |   |                    |   |
|   |   |                    |   |
|   |   |                    |   |
|        |        |                         |  |  |

 

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|   |   | **ADMINISTRATIVE AGENT:**                                |
|--------|--------|----------------------------------------------------------|
|   |   |                                                     |
|   |   | UNION BANK OF CALIFORNIA, N.A., as  Administrative Agent |

 
|   |   | By:    |   |
|--------|--------|--------|--------|
|   |   | Name:  |   |
|   |   | Title: |   |

 

 
|   |   | By:    |   |
|--------|--------|--------|--------|
|   |   | Name:  |   |
|   |   | Title: |   |

 

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