Exhibit 10.9


 


AMENDED AND RESTATED GUARANTY AGREEMENT


 


This Amended
and Restated 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 Union Bank of California,
N.A, as Administrative Agent for the ratable benefit of itself, the Lenders (as
defined below) and as Issuing Lender (as defined below), and the Swap
Counterparties (as defined in the Credit Agreement referred to below) (together
with the Administrative Agent, the Issuing Lender, and the Lenders, individually
a “Beneficiary”, and collectively, the “Beneficiaries”).


 


INTRODUCTION


 


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


 


B.                                     In
order to guarantee the full and punctual payment and performance of the
obligations under the Existing Credit Agreement and the other Loan Documents
(as defined in the Existing Credit Agreement), the Guarantors executed and
delivered to the Administrative Agent that certain Guaranty Agreement dated as
of November 29, 2005 (as heretofore amended, restated, supplemented or
otherwise modified, the “Existing Guaranty”).


 


C.                                     The
parties to the Existing Credit Agreement have agreed to amend and restate the
Existing Credit Agreement in its entirely pursuant to that certain Amended and
Restated Credit Agreement dated as of December 17, 2008 (as further
amended, supplemented or otherwise modified from time to time, the “Credit
Agreement”), among the Borrower, the lenders party thereto from time to
time (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.                                    It
is a requirement under the Credit Agreement that the Guarantors shall continue
to guarantee the due payment and performance of all Obligations (as defined in
the Credit Agreement) by amending and restating in its entirety the Existing
Guaranty as set forth herein.


 


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


 


F.                                      Each
Guarantor is executing and delivering this Guaranty (i) to induce the
Lenders to provide and to continue to provide Advances under the Credit
Agreement, (ii) to induce the Issuing Lender to provide and continue to
provide Letters of Credit under the Credit Agreement, and (iii) 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.


 


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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 owing in respect of Letter of Credit
Obligations, 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, the Issuing Lender or any Lender under the Loan
Documents and by the Borrower or any of its Subsidiaries to the Swap
Counterparty but for the fact that they are unenforceable or not allowable due
to insolvency or the existence of a bankruptcy, reorganization or similar
proceeding involving the Borrower or such other Subsidiary.


 


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


 


Section 3.                                            Guaranty
Absolute.  Each Guarantor guarantees
that the Guaranteed Obligations will be paid strictly in accordance with the
terms of the Loan Documents, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Administrative Agent, the Issuing Lender, any Lender or any Swap
Counterparty 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 or in connection with any Hedge
Contract, 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 


 


2

















 


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 agreement or instrument relating to any Hedge
Contract with a Swap Counterparty, or any other amendment or waiver of or any
consent to departure from any Loan Document or any agreement or instrument
relating to any Hedge Contract with a Swap Counterparty, 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;


 


(f)                                    any
failure of any Lender, the Administrative Agent, the Issuing Lender or any
other 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 the
Administrative Agent, the Issuing Lender, any Lender or any other 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, the Administrative Agent, the Issuing
Lender or any Swap Counterparty 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 


 


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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 the Hedge Contracts with a
Swap Counterparty and that the waivers set forth in this Guaranty are knowingly
made in contemplation of such benefits.


 


Section 6.                                            Subrogation.
No Guarantor will exercise any rights that it may now have or hereafter acquire
against the Borrower or any other Person to the extent that such rights arise
from the existence, payment, performance or enforcement of such Guarantor’s
obligations under this Guaranty or any other Loan Document, including, without
limitation, any right of subrogation, reimbursement, exoneration, contribution
or indemnification and any right to participate in any claim or remedy of any Beneficiary
against the Borrower or any other Person, whether or not such claim, remedy or
right arises in equity or under contract, statute or common law, including,
without limitation, the right to take or receive from the Borrower or any other
Person, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such claim, remedy or
right, unless and until all of the Guaranteed Obligations and any and all other
amounts payable by the Guarantors under this Guaranty shall have been paid in
full in cash, all Letters of Credit have terminated or expired and no Letter of
Credit Obligations shall remain outstanding, and all Commitments shall have
expired or terminated.  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, (b) the
satisfaction of all Letter of Credit Obligations and the termination of all
obligations of the Issuing Lender and the Lenders in respect of Letters of
Credit, (c)  the termination of the Hedge Contracts with the Beneficiaries,
and (d) the termination of the Commitments, such amount shall be held in
trust for 


 


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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, the Issuing Lender 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 Lender or the
Administrative Agent, the Issuing Lender and any other 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 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 


 


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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
Letter of Credit Obligations, 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, the Issuing
Lender or any Lender, at its address specified in or pursuant to the Credit
Agreement, and if to a Swap Counterparty, at its address specified in the
applicable Hedge Contract.  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
the Administrative Agent or any other 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,
the termination of all Letter of Credit Obligations, the termination of the
Hedge Contracts with the Beneficiaries, and the termination of all the
Commitments, (b) be binding upon each Guarantor and its successors and
assigns, (c) inure to the benefit of and be enforceable by the
Administrative Agent, each Lender, and the Issuing Lender, and their respective
successors, and, in the case of transfers and assignments made in accordance
with the Credit Agreement, transferees and assigns, and (d) inure to the
benefit of and be enforceable by a Swap Counterparty and each of its
successors, transferees and assigns to the extent such successor, transferee or
assign is a Lender or an Affiliate of a Lender. 
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 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, or the Issuing Lender 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 


 


6

















 


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 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, 


 


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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.                                      Amendment and Restatement.  This Guaranty is an amendment and restatement
of the Existing Guaranty and supersedes the Existing Guaranty in its entirety;
provided, however, that the execution and delivery of this Guaranty shall not
effect a novation of the Existing Guaranty but shall be, to the fullest extent
applicable, in modification, renewal, confirmation and extension of the
Existing Guaranty.


 


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


 


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


 


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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 Amended and Restated Guaranty Agreement


 

















 


	
   

  	
   

  	
  ADMINISTRATIVE
  AGENT:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  UNION BANK OF CALIFORNIA, N.A., as

  Administrative Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Randall Osterberg

  
	
   

  	
   

  	
   

  	
  Randall Osterberg

  
	
   

  	
   

  	
   

  	
  Senior Vice President

  



 


Signature
Page to Amended and Restated Guaranty Agreement


 

















 


Annex 1 to the

Guaranty Agreement


 


SUPPLEMENT NO.         
dated as of
                            (the
“Supplement”), to the Amended
and Restated 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 UNION BANK OF CALIFORNIA, N.A., as Administrative Agent (the “Administrative Agent”) for the
benefit of the Beneficiaries (as defined in the Guaranty Agreement).


 


A.                                   Reference
is 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 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 and the Issuing Lender to issue Letters of
Credit.  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 in order to induce the Lenders
to make additional Advances and the Issuing Lender to issue additional Letters
of Credit and as consideration for Advances previously made and Letters of
Credit previously issued.


 


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 


 


Annex
1 to Amended and Restated Guaranty Agreement


 

















 


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, 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:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Address  of  Guarantor:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ADMINISTRATIVE AGENT:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  UNION BANK OF CALIFORNIA, N.A., as

  Administrative Agent

  
					



 

















 


	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title: