Exhibit 10.10


 


SUBORDINATED GUARANTY AGREEMENT


 


This Subordinated
Guaranty Agreement dated as of December 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 December 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.


 


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(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;


 


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


 


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(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 contemplated by the Loan Documents and that the waivers set forth
in 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 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 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 


 


4

















 


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 Majority
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 Majority 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 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 


 


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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 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 


 


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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 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
as of December 17, 2008 (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.


 


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 


 


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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.]


 


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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

  	
   

  	
  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 Guaranty
Agreement


 

















 


Annex 1 to the

Subordinated Guaranty Agreement


 


SUPPLEMENT
NO.          dated as of                             (the
“Supplement”),
to the Subordinated Guaranty Agreement dated as of December 17, 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 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.                                     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, 


 


Annex 1 to Subordinated Guaranty Agreement


 

















 


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.


 

















 


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:

  	
   

  
	
   

  	
   

  	
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  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Address  of  Guarantor:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
					



 

















 


	
   

  	
   

  	
  ADMINISTRATIVE AGENT:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  UNION BANK OF CALIFORNIA, N.A., as

  Administrative Agent

  



 


	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  



 


 


	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title: