**Exhibit 10.9**

 

**AMENDED AND RESTATED GUARANTY AGREEMENT**

 

This Amendedand Restated Guaranty 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 Union Bank of California,N.A, as Administrative Agent for the ratable benefit of itself, the Lenders (asdefined below) and as Issuing Lender (as defined below), and the SwapCounterparties (as defined in the Credit Agreement referred to below) (togetherwith the Administrative Agent, the Issuing Lender, and the Lenders, individuallya “Beneficiary”, and collectively, the “Beneficiaries”).

 

**INTRODUCTION**

 

A.                                   CanoPetroleum, Inc. a Delaware corporation (the “Borrower”) haspreviously entered in that certain Credit Agreement dated as of November 29,2005 (as it has been amended, supplemented, restated or otherwise modified fromtime to time, the “Existing Credit Agreement”), among Borrower, theLenders, the Administrative Agent and the Issuing Lender.

 

B.                                     Inorder to guarantee the full and punctual payment and performance of theobligations under the Existing Credit Agreement and the other Loan Documents(as defined in the Existing Credit Agreement), the Guarantors executed anddelivered to the Administrative Agent that certain Guaranty Agreement dated asof November 29, 2005 (as heretofore amended, restated, supplemented orotherwise modified, the “Existing Guaranty”).

 

C.                                     Theparties to the Existing Credit Agreement have agreed to amend and restate theExisting Credit Agreement in its entirely pursuant to that certain Amended andRestated Credit Agreement dated as of December 17, 2008 (as furtheramended, supplemented or otherwise modified from time to time, the “CreditAgreement”), among the Borrower, the lenders party thereto from time totime (individually, a “Lender” and collectively, the “Lenders”),and Union Bank of California, N.A., as administrative agent (in such capacity,the “Administrative Agent”) and as issuing lender (in such capacity, the“Issuing Lender”).

 

D.                                    Itis a requirement under the Credit Agreement that the Guarantors shall continueto guarantee the due payment and performance of all Obligations (as defined inthe Credit Agreement) by amending and restating in its entirety the ExistingGuaranty as set forth herein.

 

E.                                      EachGuarantor is a subsidiary of the Borrower and will derive substantial directand indirect benefit from (i) the transactions contemplated by the CreditAgreement and the other Loan Documents (as defined in the Credit Agreement) and(ii) the Hedge Contracts (as defined in the Credit Agreement) entered intoby the Borrower or any of its other subsidiaries with a Swap Counterparty.

 

F.                                      EachGuarantor is executing and delivering this Guaranty (i) to induce theLenders to provide and to continue to provide Advances under the CreditAgreement, (ii) to induce the Issuing Lender to provide and continue toprovide Letters of Credit under the Credit Agreement, and (iii) intendingit to be a legal, valid, binding, enforceable and continuing obligation of suchGuarantor, whether or not such Guarantor derives any benefit from the CreditAgreement or from any other Loan Document.

 

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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 owing in respect of Letter of CreditObligations, amounts required to be provided as collateral, indemnities,expenses or otherwise (collectively, the “Guaranteed Obligations”).  Without limiting the generality of theforegoing, each Guarantor’s liability shall extend to all amounts thatconstitute part of the Guaranteed Obligations and would be owed by the Borrowerto the Administrative Agent, the Issuing Lender or any Lender under the LoanDocuments and by the Borrower or any of its Subsidiaries to the SwapCounterparty 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.

 

(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 therights of the Administrative Agent, the Issuing Lender, any Lender or any SwapCounterparty 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 or in connection with any HedgeContract, and a separate action or actions may be brought and prosecutedagainst any Guarantor to enforce this Guaranty, irrespective of whether anyaction is brought against the Borrower, any other Guarantor or any other Personor whether the Borrower, any other Guarantor or any other Person is joined inany such action or actions. The liability of each Guarantor under this Guarantyshall be irrevocable, absolute and unconditional irrespective of, and eachGuarantor 

 

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hereby irrevocably waives any defenses it may now orhereafter 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 agreement or instrument relating to any HedgeContract with a Swap Counterparty, or any other amendment or waiver of or anyconsent to departure from any Loan Document or any agreement or instrumentrelating to any Hedge Contract with a Swap Counterparty, including, withoutlimitation, any increase in the Guaranteed Obligations resulting from theextension of additional credit to 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;

 

(f)                                    anyfailure of any Lender, the Administrative Agent, the Issuing Lender or anyother Beneficiary to disclose to the Borrower or any Guarantor any informationrelating to the business, condition (financial or otherwise), operations,properties or prospects of any Person now or in the future known to theAdministrative Agent, the Issuing Lender, any Lender or any other Beneficiary(and each Guarantor hereby irrevocably waives any duty on the part of any Beneficiaryto 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, the Administrative Agent, the IssuingLender or any Swap Counterparty receives any proceeds of collateral, and suchpayments or proceeds or any part thereof are subsequently invalidated, declaredto be fraudulent or preferential, set aside, or otherwise required to berepaid, then to the extent of such repayment the Guaranteed Obligations shallbe reinstated and continued in full force and effect as of the date suchinitial payment or collection of proceeds occurred.  **EACH**

 

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**GUARANTOR SHALL DEFEND AND INDEMNIFYEACH BENEFICIARY FROM AND AGAINST ANY CLAIM, DAMAGE, LOSS, LIABILITY, COST OREXPENSE UNDER THIS SECTION 4 (INCLUDING REASONABLE ATTORNEYS’ FEES ANDEXPENSES) IN THE DEFENSE OF ANY SUCH ACTION OR SUIT INCLUDING SUCH CLAIM,DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE ARISING AS A RESULT OF THEINDEMNIFIED BENEFICIARY’S OWN NEGLIGENCE BUT EXCLUDING SUCH CLAIM, DAMAGE,LOSS, LIABILITY, COST, OR EXPENSE THAT IS FOUND IN A FINAL, NON-APPEALABLEJUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCHINDEMNIFIED BENEFICIARY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.**

 

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 the Hedge Contracts with aSwap Counterparty and that the waivers set forth in this Guaranty are knowinglymade in contemplation of such benefits.

 

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 any Beneficiaryagainst the Borrower or any other Person, whether or not such claim, remedy orright arises in equity or under contract, statute or common law, including,without limitation, the right to take or receive from the Borrower or any otherPerson, directly or indirectly, in cash or other property or by set-off or inany other manner, payment or security on account of such claim, remedy orright, unless and until all of the Guaranteed Obligations and any and all otheramounts payable by the Guarantors under this Guaranty shall have been paid infull in cash, all Letters of Credit have terminated or expired and no Letter ofCredit Obligations shall remain outstanding, and all Commitments shall haveexpired or terminated.  If any amountshall be paid to a Guarantor in violation of the preceding sentence at any timeprior to (a) the payment in full in cash of the Guaranteed Obligations andany and all other amounts payable by the Guarantors under this Guaranty, (b) thesatisfaction of all Letter of Credit Obligations and the termination of allobligations of the Issuing Lender and the Lenders in respect of Letters ofCredit, (c)  the termination of the Hedge Contracts with the Beneficiaries,and (d) the termination of the Commitments, such amount shall be held intrust for 

 

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the benefit of the Beneficiaries and shall forthwithbe paid to the Administrative Agent to be credited and applied to theGuaranteed Obligations and any and all other amounts payable by the Guarantorsunder this Guaranty, whether matured or unmatured, in accordance with the termsof the Loan Documents.

 

Section 7.                                            Representationsand Warranties.  Each Guarantorhereby represents 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 AdministrativeAgent, the Issuing Lender or any Lender and based on such documents andinformation as it has deemed appropriate, made its own credit analysis anddecision to enter into this Guaranty, and such Guarantor has establishedadequate means of obtaining from the Borrower and each other relevant Person ona continuing basis information pertaining to, and is now and on a continuingbasis will be completely familiar with, the business, condition (financial andotherwise), operations, properties and prospects of the Borrower and each otherrelevant 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 validlyauthorized in all respects by such Guarantor, and the Person who is executingand 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 termsand conditions 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 Lender or theAdministrative Agent, the Issuing Lender and any other 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 not such Beneficiary shall have made anydemand under this 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 

 

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liability of any Guarantor hereunder (it beingunderstood that waivers and amendments permitted to be made under the CreditAgreement by the Majority Lenders with respect to any of the underlyingobligations guaranteed hereunder shall not be deemed to limit the liability ofany Guarantor within the meaning of this clause (a)), (b) postpone anydate fixed for payment hereunder in respect of any of the GuaranteedObligations that is principal of, or interest on, the Notes or any fees, orLetter of Credit Obligations, or (c) change the percentage of theCommitments or of the aggregate unpaid principal amount of the Notes requiredto 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, the IssuingLender or any Lender, at its address specified in or pursuant to the CreditAgreement, and if to a Swap Counterparty, at its address specified in theapplicable Hedge Contract.  All suchnotices and communications shall be effective when delivered, except that noticesand communications to the Administrative Agent shall not be effective untilreceived by the Administrative Agent.

 

Section 11.                                      No Waiver:Remedies.  No failure on the part ofthe Administrative Agent or any other Beneficiary to exercise, and no delay inexercising, any right hereunder shall operate as a waiver thereof; nor shallany single or partial exercise of any right hereunder preclude any other orfurther exercise thereof or the exercise of any other right. The remediesherein provided are cumulative and not exclusive of any remedies provided bylaw.

 

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,the termination of all Letter of Credit Obligations, the termination of theHedge Contracts with the Beneficiaries, and the termination of all theCommitments, (b) be binding upon each Guarantor and its successors andassigns, (c) inure to the benefit of and be enforceable by theAdministrative Agent, each Lender, and the Issuing Lender, and their respectivesuccessors, and, in the case of transfers and assignments made in accordancewith the Credit Agreement, transferees and assigns, and (d) inure to thebenefit of and be enforceable by a Swap Counterparty and each of itssuccessors, transferees and assigns to the extent such successor, transferee orassign is a Lender or an Affiliate of a Lender. Without limiting 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 with all the benefits in respect thereof grantedto such 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, or the Issuing Lender in accordance with the CreditAgreement, such Person shall be 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 

 

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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 Guaranty and the other Loan Documents, and eachGuarantor hereby irrevocably agrees that all claims in respect of such actionor proceeding may be heard and determined in such court.  Each Guarantor hereby irrevocably waives, tothe fullest extent it may effectively do so, any right it may have to thedefense of an inconvenient forum to the maintenance of such action or proceeding.  Each Guarantor hereby agrees that service ofcopies of the summons and complaint and any other process which may be servedin any such action or proceeding may be made by mailing or delivering a copy ofsuch process to such Guarantor at its address set forth in the Credit Agreementor set forth on the signature page of this Guaranty.  Each Guarantor agrees that a final judgmentin any such action or proceeding shall be conclusive and may be enforced inother jurisdictions by suit on the judgment or in any other manner provided bylaw.  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 RESPECTIVEDIRECTORS, OFFICERS, EMPLOYEES AND AGENTS, UPON DEMAND FOR ANY REASONABLEOUT-OF-POCKET EXPENSES (INCLUDING REASONABLE OUTSIDE LEGAL FEES) INCURRED INCONNECTION WITH ANY SUCH INVESTIGATION, LITIGATION OR OTHER PROCEEDING; ANDEXPRESSLY INCLUDING ANY SUCH LOSSES, LIABILITIES, CLAIMS, DAMAGES, OR EXPENSEINCURRED BY REASON OF THE PERSON BEING INDEMNIFIED’S OWN NEGLIGENCE,****BUT EXCLUDING ANY SUCH LOSSES, LIABILITIES,**

 

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**CLAIMS, DAMAGES OR EXPENSES THAT ISFOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTIONTO HAVE RESULTED FROM SUCH INDEMNIFIED PERSON’S GROSS NEGLIGENCE OR WILLFULMISCONDUCT.**

 

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.                                      **Amendment and Restatement.  This Guaranty is an amendment and restatementof the Existing Guaranty and supersedes the Existing Guaranty in its entirety;provided, however, that the execution and delivery of this Guaranty shall noteffect a novation of the Existing Guaranty but shall be, to the fullest extentapplicable, in modification, renewal, confirmation and extension of theExisting Guaranty.**

 

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 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.**

 

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

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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  |
|                                            |            |                                                   |  |  |

 

SignaturePage to Amended and Restated Guaranty Agreement

 

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|   | ** ** | **ADMINISTRATIVE  AGENT:**                               |
|--------|------------|----------------------------------------------------------|
|   | ** ** |                                                     |
|   | ** ** | UNION BANK OF CALIFORNIA, N.A., as  Administrative Agent |
|   | ** ** |                                                     |
|   | ** ** |                                                     |
|   | ** ** | By:                                                      | /s/ Randall Osterberg |
|   | ** ** |                                                     | Randall Osterberg |
|   | ** ** |                                                     | Senior Vice President |

 

SignaturePage to Amended and Restated Guaranty Agreement

 

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Annex 1 to theGuaranty Agreement

 

SUPPLEMENT NO.         dated as of                            (the“Supplement”), to the Amendedand Restated Guaranty Agreement dated as of December 17, 2008 (as amended,supplemented or otherwise modified from time to time, the “Guaranty Agreement”), among each ofthe 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 BANK OF CALIFORNIA, N.A., as Administrative Agent (the “Administrative Agent”) for thebenefit of the Beneficiaries (as defined in the Guaranty Agreement).

 

A.                                   Referenceis made to the Amended and Restated Credit Agreement dated as of December 17,2008 (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.                                     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 and the Issuing Lender to issue Letters ofCredit.  Pursuant to Section 6.15 ofthe 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“New Guarantor”) is executingthis Supplement in accordance with the requirements of the Credit Agreement tobecome a Guarantor under the Guaranty Agreement in order to induce the Lendersto make additional Advances and the Issuing Lender to issue additional Lettersof Credit and as consideration for Advances previously made and Letters ofCredit previously issued.

 

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 the GuarantyAgreement 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 and 

 

Annex1 to Amended and Restated Guaranty Agreement

 

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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, to equitable principles of generalapplication (regardless of whether enforcement is sought in a proceeding inequity 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 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 herebyagrees 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.

 

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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.

 

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

 

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

 

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