**Exhibit 10.9**

 

SUPPLEMENT NO. 1 dated as of April 28, 2006 (the *“Supplement*”),to the Guaranty Agreement dated as of November 29, 2005 (as amended,supplemented or otherwise modified from time to time, the *“Guaranty Agreement”*), among eachof 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 UNION BANKOF CALIFORNIA, N.A., as Administrative Agent (the *“Administrative Agent”*) for thebenefit of the Beneficiaries (as defined in the Guaranty Agreement).

 

A.            Reference is made tothe Credit Agreement dated as of November 29, 2005 (as amended,supplemented or otherwise modified from time to time, the *“Credit Agreement”*), among theBorrower, the lenders from time to time party thereto (the *“Lenders”*), and the AdministrativeAgent.

 

B.            Capitalized terms usedherein and not otherwise defined herein shall have the meanings assigned tosuch terms in the Guaranty Agreement and the Credit Agreement.

 

C.            The Guarantors haveentered into the Guaranty Agreement in order to induce the Lenders to makeAdvances and the Issuing Lender to issue Letters of Credit. 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 GuarantyAgreement provides that additional Subsidiaries of the Borrower may becomeGuarantors under the Guaranty Agreement by execution and delivery of aninstrument in the form of this Supplement. The undersigned Subsidiary ofthe Borrower (the *“New Guarantor”*) is executing this Supplement in accordancewith the requirements of the Credit Agreement to become a Guarantor under theGuaranty Agreement in order to induce the Lenders to make additional Advancesand the Issuing Lender to issue additional Letters of Credit and asconsideration for Advances previously made and Letters of Credit previouslyissued.

 

Accordingly, the Administrative Agent and the New Guarantor agree asfollows:

 

SECTION 1.           In accordance with Section 16of the Guaranty Agreement, the New Guarantor by its signature below becomes aGuarantor under the Guaranty Agreement with the same force and effect as iforiginally named therein as a Guarantor and the New Guarantor hereby (a) agreesto all the terms and provisions of the Guaranty Agreement applicable to it as aGuarantor thereunder and (b) represents and warrants that therepresentations and warranties made by it as a Guarantor thereunder are trueand correct in all material respects on and as of the date hereof. Eachreference to a “Guarantor” in the Guaranty Agreement shall be deemed to includethe New Guarantor. The Guaranty Agreement is hereby incorporated herein byreference.

 

SECTION 2.           The New Guarantorrepresents and warrants to the Administrative Agent and the other Beneficiariesthat this Supplement has been duly authorized, executed and delivered by it andconstitutes its legal, valid and binding obligation, enforceable against it inaccordance with its terms (subject to applicable bankruptcy, reorganization,insolvency, moratorium or similar laws affecting creditors’ rights generallyand subject, as to enforceability,

 

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toequitable principles of general application (regardless of whether enforcementis sought in a proceeding in equity or at law)).

 

SECTION 3.           This Supplement may beexecuted in counterparts, each of which shall constitute an original, but allof which when taken together shall constitute a single contract. ThisSupplement shall become effective when the Administrative Agent shall havereceived counterparts of this Supplement that, when taken together, bear thesignatures of the New Guarantor and the Administrative Agent. Delivery of anexecuted signature page to this Supplement by fax transmission shall be aseffective as delivery of a manually executed counterpart of thisSupplement.

 

SECTION 4.           Except as expresslysupplemented hereby, the Guaranty Agreement shall remain in full force andeffect.

 

SECTION 5.           THIS SUPPLEMENT SHALLBE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THESTATE OF TEXAS. The New Guarantor hereby irrevocably submits to thejurisdiction of any Texas state or federal court sitting in Dallas, Texas inany action or proceeding arising out of or relating to this Supplement or theGuaranty Agreement and the other Loan Documents, and the New Guarantor herebyirrevocably agrees that all claims in respect of such action or proceeding may beheard and determined in such court. The New Guarantor hereby irrevocablywaives, to the fullest extent it may effectively do so, any right it may haveto the defense of an inconvenient forum to the maintenance of such action orproceeding. The New Guarantor hereby agrees that service of copies of thesummons and complaint and any other process which may be served in anysuch action or proceeding may be made by mailing or delivering a copy ofsuch 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 proceedingshall be conclusive and may be enforced in other jurisdictions by suit onthe judgment or in any other manner 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 the New Guarantor or its Property in the courts of anyother jurisdiction.

 

SECTION 6.           In case any one or moreof the provisions contained in this Supplement should be held invalid, illegalor unenforceable in any respect, the validity, legality and enforceability ofthe remaining provisions contained herein and in the Guaranty Agreement shallnot in any way be affected or impaired thereby (it being understood that theinvalidity of a particular provision hereof in a particular jurisdiction shallnot in and of itself affect the validity of such provision in any otherjurisdiction). The parties hereto shall endeavor in good-faith negotiations toreplace the invalid, illegal or unenforceable provisions with valid provisionsthe economic effect of which comes as close as possible to that of the invalid,illegal or unenforceable provisions.

 

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

 

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SECTION 8.           The New Guarantoragrees to reimburse the Administrative Agent for its reasonable out-of-pocketexpenses in connection with this Supplement, including the fees, disbursementsand other charges of counsel for the Administrative Agent.

 

SECTION 9.           **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 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 SUPPLEMENT, THE GUARANTYAGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THEPARTIES 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 ORAL AGREEMENTS AMONGTHE PARTIES.**

 

IN WITNESS WHEREOF, the New Guarantor and the Administrative Agent haveduly executed this Supplement to the Guaranty Agreement as of the day and yearfirst above written.

 
|   | **NEW  GUARANTOR:**                                      |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | PANTWIST, LLC                                            |
|   |                                                     |
|   |                                                     |
|   | By:                                                      |  /s/ Jeffrey Johnson |   |
|   |                                                     | S. Jeffrey Johnson |
|   |                                                     | President |
|   |                                                     |
|   |   Address of New Guarantor:                    |
|   | 309 West 7th Street, Suite 1600                     |
|   | Fort Worth, Texas 76102                                  |
|   |                                                     |
|   | **ADMINISTRATIVE  AGENT:**                               |
|   |                                                     |
|   | UNION BANK OF CALIFORNIA, N.A., as  Administrative Agent |
|   |                                                     |
|   |                                                     |
|   | By:                                                      | /s/ Kimberly Coil |   |
|   |                                                     | Kimberly Coil |
|   |                                                     | Vice President |

 

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