Document:

Exhibit 10.8

 

FIRST AMENDMENT TO

SUBORDINATED CREDIT AGREEMENT

 

This First Amendment to Subordinated Credit
Agreement (this “First Amendment”) is made and entered into as of April 28,
2006 (the “Effective Date”) by and among ENERGY COMPONENTS SPC EEP ENERGY
EXPLORATION AND PRODUCTION SEGREGATED PORTFOLIO, a Cayman Islands company, as
Administrative Agent and Lender (each as defined in accordance with Section 1
below)(“Energy Components”), UNIONBANCAL EQUITIES, INC., a California
corporation, as Lender (as defined in accordance with Section 1 below)(“UBEI”)(Energy
Components and UBEI referred to collectively as the “Lenders”), CANO PETROLEUM, INC.,
a Delaware corporation (“Borrower”) and the GUARANTORS (as defined in
accordance with Section 1 below).

 

WHEREAS, Lenders and Borrower entered into
that certain Subordinated Credit Agreement dated as of November 29, 2005
(the “Agreement”);

 

WHEREAS, Borrower desires to purchase certain
assets of Myriad Resources Corporation and its affiliates (the “Acquisition”);

 

WHEREAS, in connection with the Acquisition,
Pantwist, LLC, a wholly-owned subsidiary of Borrower, desires to become a
Guarantor pursuant to that certain Guaranty Agreement dated as of November 29,
2005 among Energy Components, as Administrative Agent for the Lenders, Ladder
Companies, Inc., Square One Energy, Inc., W.O. Energy of Nevada, Inc.,
WO Energy, Inc., W.O. Operating Company, Ltd. and W.O. Production Company,
Ltd.

 

WHEREAS, in connection with the Acquisition,
Borrower desires to amend certain provisions of that certain Senior Credit
Agreement dated November 29, 2005 among Borrower, Union Bank of
California, N.A., as Senior Agent, and the lenders party thereto from time to
time (the “Senior Facility”); and

 

WHEREAS, Lenders and Borrower desire to amend
certain terms of the Agreement so that such amended terms are substantially
similar to certain terms of the Senior Facility, as amended.

 

NOW, THEREFORE, in consideration of the
foregoing and the mutual agreements and covenants set forth herein, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and accepted, Lenders, Guarantors and Borrower agree as
follows:

 

1.             Certain Terms.
Each term defined in the Agreement and used in this First Amendment without
definition shall have the meaning assigned to such term in the Agreement,
unless expressly provided to the contrary.

 

 

2.             Defined Terms. Section 1.01 of the Agreement is
amended by inserting the following new definitions in alphabetical order:

 

“First Amendment” means the First
Amendment to Subordinated Credit Agreement dated as of April 28, 2006
among the Borrower, the Guarantors, the Lenders, and the Administrative Agent,
which amends this Agreement.

 

“Twister Oil and Gas Properties” means
the Oil and Gas Properties acquired by the Pantwist, LLC from Myriad Resources
Corporation and its affiliates pursuant to that certain Asset
Purchase and Sale Agreement among Myriad Resources
Corporation, Westland Energy Company, and PAMTEX, a Texas general partnership
composed of PAMTEX GP1 Ltd. and PAMTEX GP2 Ltd. as sellers, and the Borrower as
the purchaser and dated April 25, 2006.

 

3.             Amendment to Section 4.07(a) of the
Agreement. Section 4.07(a) of
the Agreement is hereby amended by deleting the first sentence thereof in its
entirety and replacing it with the following:

 

There is no pending or, to the best knowledge
of the Borrower, threatened action or proceeding affecting the Borrower or any
of the Guarantors before any court, Governmental Authority or arbitrator which
could reasonably be expected to cause a Material Adverse Change other than as
set forth in Schedule 4.07 or which purports to affect the legality,
validity, binding effect or enforceability of this Agreement, any Note, or any
other Loan Document.

 

4.             Amendment
to Section 5.04(d) of the Agreement. Section 5.04(d) of
the Agreement is hereby deleted in its entirety and replaced with the
following:

 

(d)          Production
and Hedging Reports. As soon as available and in any event within 45 days
after the end of each fiscal quarter, commencing with the fiscal quarter ending
March 31, 2006, a report certified by a Responsible Officer of the
Borrower in form and substance satisfactory to the Administrative Agent
prepared by the Borrower (i) covering each of the Oil and Gas Properties
of the Borrower and its Subsidiaries (other than the Barnett Shale Properties)
and detailing on a quarterly basis (A) the production, revenue, and price
information and associated operating expenses for each such quarter, (B) any
changes to any producing reservoir, production equipment, or producing well
during each such quarter, which changes could cause a Material Adverse Change,
and (C) any sales of the Borrower’s or any Subsidiaries’ Oil and Gas
Properties during each such quarter (other than the Barnett Shale Properties), (ii) setting
forth a true and complete list of all Hedge Contracts of the Borrower and its
Subsidiaries and detailing the material terms thereof (including the type,
term, effective date, termination date and notional amounts or volumes), the
net mark to market value thereof, all credit support agreements relating
thereto (including any margin required or supplied), and the counterparty to
each such agreement, and (iii) certifying the Borrower’s compliance with Section 5.12
hereof.”

 

 

5.             Amendment
to Section 5.12 of the Agreement. Section 5.12 of the Agreement is deleted in its entirety and
replaced with the following:

 

Section 5.12         Hedging
Arrangements. The Borrower shall:

 

(a) maintain the Hydrocarbon Hedge Agreements
in existence on March 31, 2006 and as described in Schedule 5.12 for
a minimum period of at least three years as of the end of December 31,
2006 and as of the end of each six month period ending thereafter,

 

(b) on or before 10 days following the effective
date of the First Amendment, enter into, and from and after such date, maintain
(i) Hydrocarbon Hedge Agreements covering not less than 50% of the “proved,
developed and producing” crude oil reserves attributable to the Twister Oil and
Gas Properties for a minimum period of at least three years as of the effective
date of the First Amendment and as of the end of each two fiscal quarter period
ending thereafter, and at a minimum floor of $60 per Bbl, and (ii) Hydrocarbon
Hedge Agreements covering not less than 50% of the “proved, developed and
producing” natural gas reserves attributable to the Twister Oil and Gas
Properties for a minimum period of at least three years as of the effective
date of the First Amendment and as of the end of each two fiscal quarter period
ending thereafter, and with a weighted average contract price of $7.60 per Mcf,
and

 

(c) notwithstanding any of the
foregoing, maintain Hydrocarbon Hedge Agreements covering no less than 50% and
no more than 80% of the production volumes attributable to “proved, developed
and producing” Proven Reserves of the Borrower’s and its Subsidiaries’ Oil and
Gas Properties.

 

6.             Schedule 4.07. A new Schedule 4.07 to the Agreement
is added as set forth in Schedule 4.07 attached to this First Amendment.

 

7.             Schedule 4.21.
Schedule 4.21 to the Agreement is replaced in its entirety with the Schedule 4.21
attached to this First Amendment.

 

8.             Borrower Representations and Warranties.
The Borrower represents and warrants that: (a) the representations and warranties
contained in the Agreement, as amended hereby, are true and correct in all
material respects on and as of the Effective Date as if made on as and as of
such date except to the extent that any such representation or warranty
expressly relates solely to an earlier date, in which case such representation
or warranty is true and correct in all material respects as of such earlier
date; (b) no Default has occurred and is continuing; (c) the execution, delivery and performance of
this First Amendment are within the corporate power and authority of the
Borrower and have been duly authorized by appropriate corporate and governing
action and proceedings; (d) this First Amendment constitutes the legal,
valid, and binding obligation of the Borrower enforceable in accordance with
its terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the rights of creditors
generally and general principles of equity; (e) there are no governmental
or other third party consents, licenses and approvals required in connection
with the execution, delivery,

 

 

performance, validity and enforceability of this First Amendment; and (f) the
Liens under the Security Instruments are valid and subsisting and secure
Borrower’s obligations under the Loan Documents.

 

9.             Guarantors Representations and Warranties.
Each Guarantor represents and warrants that: (a) the representations and
warranties contained in the Guaranty and the representations and warranties
contained in the other Loan Documents, as amended hereby, are true and correct
in all material respects on and as of the Effective Date as if made on as and
as of such date except to the extent that any such representation or warranty
expressly relates solely to an earlier date, in which case such representation
or warranty is true and correct in all material respects as of such earlier
date; (b) no Default has occurred and is continuing; (c) the
execution, delivery and performance of this First Amendment are within the
corporate, limited liability company, or partnership power and authority of
such Guarantor and have been duly authorized by appropriate corporate, limited
liability company, or partnership action and proceedings; (d) this First
Amendment constitutes the legal, valid, and binding obligation of such
Guarantor enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting the rights of creditors generally and general principles of equity; (e) there
are no governmental or other third party consents, licenses and approvals
required in connection with the execution, delivery, performance, validity and
enforceability of this First Amendment; (f) it has no defenses to the
enforcement of the Guaranty; and (g) the Liens under the Security
Instruments are valid and subsisting and secure such Guarantor’s and the
Borrower’s obligations under the Loan Documents.

 

10.           Conditions to
Effectiveness. This First Amendment and
the amendments to the Agreement provided herein shall become effective on the
Effective Date and enforceable against the parties hereto upon the occurrence
of the following conditions precedent:

 

(a)           The
Administrative Agent shall have received multiple original counterparts, as
requested by the Administrative Agent, of this First Amendment duly and validly
executed and delivered by duly authorized officers of the Borrower, the
Guarantors, the Administrative Agent, and the Lenders.

 

(b)           The Borrower or the respective Guarantor shall have delivered fully
executed, multiple originals of new Mortgages or supplements to existing
Mortgages, in form and substance acceptable to the Administrative Agent,
and encumbering the Oil and Gas Properties acquired under the Acquisition.

 

(c)           The Administrative Agent shall have received a
fully executed, correct and complete copy of the asset purchase and sale
agreement relating to the Acquisition and all other documents, agreements,
instruments and amendments, if any, related thereto and certified as such by a
duly authorized officer of the Borrower.

 

(d)           The
Collateral Trustee shall have received all requested lien releases, title
opinions and other title due diligence material satisfactory to it evidencing
the title to the Oil and Gas Properties to being acquired pursuant to the
acquisition.

 

 

(e)           All conditions to the effectiveness of the Acquisition, other than the payment
of the purchase price, shall have been met.

 

(f)            No Default shall have occurred and be
continuing as of the Effective Date.

 

(g)           The representations and warranties in this First Amendment shall be
true and correct in all material respects.

 

(h)           The Borrower shall have
paid all fees and expenses of the Administrative Agent’s outside legal counsel
and other consultants pursuant to all invoices presented for payment on or
prior to the Effective Date.

 

11.           Acknowledgments
and Agreements.

 

(a)           The
Borrower acknowledges that on the date hereof all Obligations are payable
without defense, offset, counterclaim or recoupment.

 

(b)           The Administrative Agent and the Lenders hereby expressly reserve all
of their rights, remedies, and claims under the Loan Documents. Nothing in this
First Amendment shall constitute a waiver or relinquishment of (i) any
Default or Event of Default under any of the Loan Documents, (ii) any of
the agreements, terms or conditions contained in any of the Loan Documents, (iii) any
rights or remedies of the Administrative Agent or any Lender with respect to
the Loan Documents, or (iv) the rights of the Administrative Agent or any
Lender to collect the full amounts owing to them under the Loan Documents.

 

(c)           Each of the Borrower, the Guarantors, Administrative Agent, and Lenders
does hereby adopt, ratify, and confirm the Agreement, as amended by this First
Amendment, and acknowledges and agrees that the Agreement, as amended by this
First Amendment, is and remains in full force and effect, and the Borrower and
the Guarantors acknowledge and agree that their respective liabilities and
obligations under the Agreement, as amended by this First Amendment, and the
Guaranty, are not impaired in any respect by this First Amendment.

 

(d)           From and after the Effective Date, all references to the Agreement and
the Loan Documents shall mean such Agreement and such Loan Documents as amended
by this First Amendment.

 

(e)           This First Amendment is a Loan Document for the purposes of the
provisions of the other Loan Documents. Without limiting the foregoing, any
breach of representations, warranties, and covenants under this First Amendment
shall be a Default or Event of Default, as applicable, under the Agreement.

 

12.           Reaffirmation of
the Guaranty. Each Guarantor
hereby ratifies, confirms, acknowledges and agrees that its obligations under
the Guaranty are in full force and effect and that such Guarantor continues to
unconditionally and irrevocably guarantee the full and punctual payment, when
due, whether at stated maturity or earlier by acceleration or otherwise, all of
the Guaranteed Obligations (as defined in the Guaranty), as such Guaranteed
Obligations may have been amended by this First Amendment, and its
execution and delivery of this First Amendment does not indicate or establish
an approval or consent requirement by such Guarantor under the

 

 

Guaranty in connection with the execution and
delivery of amendments, consents or waivers to the Agreement, the Notes or any
of the other Loan Documents.

 

13.           Release of Claims.
Borrower for itself, its successors, assigns and all those at interest
therewith (collectively, the “Releasing Parties”), jointly and severally,
hereby voluntarily and forever, RELEASE, DISCHARGE AND ACQUIT Administrative
Agent, Lenders and their officers, directors, shareholders, employees, agents,
successors, assigns, representatives, affiliates and insurers (sometimes
referred to below collectively as the “Released Parties”) and all those at
interest therewith of and from any and all claims, causes of action,
liabilities, damages, costs (including, without limitation, attorneys’ fees and
all costs of court or other proceedings), and losses of every kind or nature at
this time known or unknown, direct or indirect, fixed or contingent, which the
Releasing Parties, have or hereafter may have arising out of any act,
occurrence, transaction, or omission occurring from the beginning of time to
the date of execution of this First Amendment if related to this First
Amendment and/or the Agreement (the “Released Claims”), except that the future
duties and obligations of Lenders under such documents shall not be included in
the term Released Claims. IT IS THE EXPRESS INTENT OF THE RELEASING PARTIES
THAT THE RELEASED CLAIMS SHALL INCLUDE ANY CLAIMS OR CAUSES OF ACTION ARISING
FROM OR ATTRIBUTABLE TO THE NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
OF ANY OF THE RELEASED PARTIES.

 

14.           Counterparts. This First Amendment may be signed in
any number of counterparts, each of which shall be an original and all of
which, taken together, constitute a single instrument. This First Amendment may be
executed by facsimile signature and all such signatures shall be effective as
originals.

 

15.           Successors and Assigns. This First Amendment shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns permitted pursuant to the Agreement.

 

16.           Invalidity.              In the event that any one or more of the
provisions contained in this First Amendment shall for any reason be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision of this First
Amendment.

 

17.           Governing Law. This First Amendment shall be deemed to be
a contract made under and shall be governed by and construed in accordance with
the laws of the State of Texas.

 

18.           Entire Agreement. THIS FIRST AMENDMENT, THE
AGREEMENT AS AMENDED BY THIS FIRST AMENDMENT, THE NOTES, AND THE OTHER LOAN
DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS,
WRITTEN OR ORAL, WITH RESPECT THERETO.

 

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

 

[SIGNATURES BEGIN ON NEXT PAGE]

 

 

IN WITNESS WHEREOF, this First Amendment is executed and effective as
of the Effective Date.

 

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  CANO PETROLEUM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
  Name:

  	
    S. Jeffrey Johnson

  	
   

  
	
   

  	
  Title:

  	
    Chief Executive Officer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GUARANTORS:

  
	
   

  	
   

  
	
   

  	
  SQUARE ONE ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
  Name:

  	
   S. Jeffrey Johnson

  	
   

  
	
   

  	
  Title:

  	
   President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LADDER COMPANIES, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
  Name:

  	
   S. Jeffrey Johnson

  	
   

  
	
   

  	
  Title:

  	
   President

  	
   

  
	
   

  	
   

  
	
   

  	
  W.O. ENERGY OF NEVADA, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
  Name:

  	
   S. Jeffrey Johnson

  	
   

  
	
   

  	
  Title:

  	
   President

  	
   

  
	
   

  	
   

  
	
   

  	
  WO ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
  Name:

  	
   S. Jeffrey Johnson

  	
   

  
	
   

  	
  Title:

  	
   President

  	
   

  
																

 

1

 

	
   

  	
  W.O.
  OPERATING COMPANY, LTD.

  
	
   

  	
  By: WO
  Energy, Inc., its general partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ S.
  Jeffrey Johnson

  	
   

  
	
   

  	
  Name:

  	
   S.
  Jeffrey Johnson

  	
   

  
	
   

  	
  Title:

  	
   President

  	
   

  
	
   

  	
   

  
	
   

  	
  W.O.
  PRODUCTION COMPANY, LTD.

  
	
   

  	
  By: WO
  Energy, Inc., its general partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ S.
  Jeffrey Johnson

  	
   

  
	
   

  	
  Name:

  	
   S.
  Jeffrey Johnson

  	
   

  
	
   

  	
  Title:

  	
   President

  	
   

  
	
   

  	
   

  
	
   

  	
  PANTWIST,
  LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S.
  Jeffrey Johnson

  	
   

  
	
   

  	
  Name:

  	
   S.
  Jeffrey Johnson

  	
   

  
	
   

  	
  Title:

  	
   President

  	
   

  
										

 

2

 

	
   

  	
  LENDER AND ADMINISTRATIVE AGENT:

  
	
   

  	
   

  
	
   

  	
  ENERGY COMPONENTS SPC EEP
  ENERGY

  EXPLORATION AND PRODUCTION

  SEGREGATED PORTFOLIO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Mark Margason

  	
   

  
	
   

  	
  Name:

  	
  Mark Margason

  
	
   

  	
  Title:

  	
  Authorized Signer

  
					

 

3

 

	
   

  	
  LENDER

  
	
   

  	
   

  
	
   

  	
  UNIONBANCAL EQUITIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael A. Ross

  	
   

  
	
   

  	
  Name:

  	
  Michael A. Ross

  
	
   

  	
  Title:

  	
  Vice President

  
					

 

4

 

SCHEDULE 4.07

 

LITIGATION

 

On March 24, 2006, the Borrower and certain of the Guarantors were
sued for claims relating to the March fires that occurred on properties
operated by W.O. Operating Company, Ltd. The case is entitled: In the 100th Judicial District Court of
Carson County, Texas, Cause No. 9840, The Tom L. and Anne Burnett Trust,
by Anne Burnett Windfohr, Windi Phillips, Ben Fortson, Jr., George Beggs, III
and Ed Hudson, Jr., as Co-Trustees; Anne Burnett Windfohr; and Burnett
Ranches, Ltd., Plaintiffs, v. Cano Petroleum, Inc., W.O. Energy of Nevada, Inc.;
W.O. Operating Company, Ltd. and W.O. Energy, Inc., Defendants.

 

On April 13, 2006, the Borrower and certain of the Guarantors
received notice that they were sued for claims relating to the March fires
that occurred on properties operated by W.O. Operating Company, Ltd. As of this
date, neither the Borrower nor any of the Guarantors have been served with
process in this case. The case is entitled: Joseph
Craig Hutchison, et ux  vs. Cano
Petroleum, Inc., W.O. Energy of Nevada, Inc.; W.O. Operating Company,
Ltd. and W.O. Energy, Inc. The plaintiffs’ attorney has also
indicated that he will be adding two additional plaintiffs in this case, the
Chisum Family Limited Partnership and the Haggard Trust.

 

 

SCHEDULE 4.21

 

MATERIAL
AGREEMENTS

 

Engagement for Professional Services by and between Cano Petroleum, Inc.
and Bainbridge Capital dated April 14, 2005.

 

Gas Purchase and Processing Agreement by and between Ladder Energy
Company and ScissorTail Energy, LLC dated September 1, 2004.

 

Gas Sales and Purchase Agreement by and between Alliant Energy
Desdemona, LP and KenMor Properties, LLC dated March 1, 2005.

 

Agreement by and between Square One Energy, Inc. and KenMor
Properties, LLC dated October 7, 2005 (in which KenMor Properties, LLC
assigns, transfers and conveys to Square One Energy, Inc. all of its
right, title and interest in and to the Gas Sales and Purchase Agreement by and
between Alliant Energy Desdemona, LP and KenMor Properties, LLC dated March 1,
2005), as amended by a First Amendment to Agreement dated October 7, 2005.

 

Gas Purchase Contract by and between Ladder Energy Company and Western
Gas Resources, Inc. dated January 7, 1998.

 

Gas Purchase Contract by and between Square One Energy, Inc. and
Newpoint Gas Services, Inc. dated April 21, 2004.

 

Crude Oil Purchase Agreement by and between Ladder Energy Company and
Sunoco, Inc. (R&M) dated February 1, 2000, as amended by a letter
agreement between Sunoco Partners Marketing & Terminals, L.P. and
Ladder Energy Company dated September 12, 2005.

 

Crude Oil Purchase Agreement by and between Ladder Energy and
Coffeyville Resources Crude Transportation dated October 4, 2005.

 

Natural Gas Liquid Mix Agreement by and between Square One Energy, Inc.
and Dufour Petroleum, L.P. dated July 1, 2004, as amended by Amendment
Letter dated October 1, 2005 and as amended by Amendment Letter dated November 1,
2005.

 

Office Lease Agreement by and between Ft. Worth Plaza Limited
Partnership, a Texas limited partnership, as Landlord and Cano Petroleum, Inc.
(assignee of Cano Energy Corporation), as Tenant, purportedly dated April 10,
2001, as amended by the First Amendment to Lease Agreement dated September 19,
2001.

 

 

Consulting Agreement by and between Cano Petroleum, Inc. and
Reservoir Solutions, Inc. dated August 15, 2005.

 

Lignin Surfactant System Development Agreement by and between Cano
Petroleum, Inc. and Reservoir Solutions, Inc. dated July 20,
2005.

 

Stock Purchase Agreement by and between Cano Petroleum, Inc., W.
O. Energy of Nevada, Inc., Miles O’Loughlin and Scott White dated November 29,
2005.

 

Employment Agreement by and between Huron Ventures, Inc. and
Michael J. Ricketts dated May 28, 2004.

 

Employment Agreement by and between Huron Ventures, Inc. and
Thomas Cochrane dated May 28, 2004.

 

Employment Agreement by and between Cano Petroleum, Inc. and James
K. Teringo, Jr. dated July 11, 2005.

 

Compensation Reimbursement Agreement by and between Cano Petroleum, Inc.
and Sabine Production Operating, LLC dated October 31, 2005.

 

Omnibus Agreement by and between Cano Petroleum, Inc., Carlile
Management, LLC, Haddock Enterprises, LLC and Sabine Production Partners, LP
dated October 31, 2005.

 

Amended and Restated Regulations of Sabine Production Operating, LLC
executed by Cano Petroleum, Inc., Haddock Enterprises, LLC and Carlile
Management, LLC, effective as of August 3, 2005.

 

2005 Directors’ Stock Option Plan of Cano Petroleum, Inc.

 

Gas Purchase and Sales Contract by and between Arrow Oil and Gas, Inc.
and STP, Inc. dated August 15, 2002.

 

Management Stock Pool Agreement dated May 28, 2004 among Huron
Ventures Inc. and The Shareholders of Davenport Field Unit Inc.

 

Management Stock Pool Escrow Agreement dated May 28, 2004 by and
among Huron Ventures Inc. and S. Jeffrey Johnson, et al.

 

Purchase and Sale Agreement dated August 16, 2004, by and between
Cano Energy Corporation and Cano Petroleum, Inc.

 

Purchase and Sale Agreement dated September 2, 2004, by and
between Nowata Oil Properties LLC and Cano Petroleum, Inc.

 

2

 

Purchase and Sale Agreement dated February 6, 2005, by and between
Square One Energy, Inc. and Cano Petroleum, Inc.

 

Subscription Agreement dated October 8, 2004 by and between Cano
Petroleum, Inc. and Randall Boyd.

 

Stock Option Agreement dated December 16, 2004, between Cano
Petroleum, Inc. and Gerald W. Haddock.

 

Form of Subscription Agreement dated March 18, 2005.

 

Letter Agreement dated March 29, 2005 among the Haddock
Enterprises, LLC, Cano Petroleum, Inc. and Kenneth Carlile.

 

Sabine Production Partners, LP Transaction Summary dated August 4,
2005.

 

Subscription Agreement dated September 16, 2005 by and between
Cano Petroleum, Inc. and Howard Hughes Medical Institute.

 

Subscription Agreement dated September 16, 2005 by and between
Cano Petroleum, Inc. and The Robert Wood Johnson Foundation.

 

Subscription Agreement dated September 16, 2005 by and between
Cano Petroleum, Inc. and Laborers’ District Council and Contractors’ of
Ohio Pension Fund.

 

Subscription Agreement dated September 16, 2005 by and between
Cano Petroleum, Inc. and Ohio Carpenters’ Pension Fund.

 

Subscription Agreement dated September 16, 2005 by and between
Cano Petroleum, Inc. and New York Nurses Association Pension Plan.

 

Subscription Agreement dated September 16, 2005 by and between
Cano Petroleum, Inc. and Public Sector Pension Investment Board.

 

Subscription Agreement dated September 16, 2005 by and between
Cano Petroleum, Inc. and Spindrift Investors (Bermuda) L.P.

 

Subscription Agreement dated September 16, 2005 by and between
Cano Petroleum, Inc. and Spindrift Partners, L.P.

 

Non-Qualified Stock Option Agreement dated September 16, 2005 by
and between Cano Petroleum, Inc. and James K. Teringo, Jr.

 

Subscription Agreement dated September 14, 2005 by and between
Cano Petroleum, Inc. and Touradji Global Resources Master Fund, Ltd.

 

3

 

Subscription Agreement dated September 14, 2005 by and between
Cano Petroleum, Inc. and Renaissance US Growth Investment Trust PLC.

 

Subscription Agreement dated September 14, 2005 by and between
Cano Petroleum, Inc. and BFS US Special Opportunities Trust PLC.

 

Subscription Agreement dated September 14, 2005 by and between
Cano Petroleum, Inc. and Crestview Capital Master, LLC.

 

Gas Purchase Contract between W.O. Operating
Company, Ltd. and Duke Field Services LP dated November 1, 2003.

 

Gas Purchase and Sales Agreement dated September 1,
1975, between Skelly Oil Company, as Seller, and Phillips Petroleum Company, as
Buyer.

 

Gas Purchase Contract between W.O. Operating
Company, as Seller, and GPM Gas Corporation, as Buyer, dated March 15,
1994.

 

Gas Purchase Contract between Hugoton Energy
Corporation, as Seller, and GPM Gas Corporation, as Buyer, dated August 3,
1995, covering Sections 3 and 4, Block Y, M&C Survey, Hutchinson County,
Texas.

 

Crude Oil Purchase Contract between W.O.
Operating Company, as Seller, and Diamond Shamrock Refining Company LP, dated August 6,
2001 (Valero is successor to Diamond Shamrock on this contract).

 

Gas Purchase Contract by and between W.O.
Operating Company Limited, as Seller, and OneOK Texas Field Services LP, as
Buyer, dated January 1, 2005.

 

Gas Purchase Contract between W.O. Operating
Company, as Seller, and GPM Gas Corporation, as Buyer, dated March 15,
1995.

 

Gas Purchase Contract dated August 3, 1995 by and between W.O.
Operating Company and Duke Energy Field Services, as amended on August 1,
2005 and September 1, 2005.

 

Oil Marketing Agreement dated January 13, 1994 by and between W.O.
Operating Company and Pan Mark, Inc.

 

Registration
Rights Agreement by and between Cano Petroleum, Inc. and Miles O’Loughlin
dated November 29, 2005.

 

Registration
Rights Agreement by and between Cano Petroleum, Inc. and Scott White dated
November 29, 2005.

 

4

 

Credit
Agreement among Cano Petroleum, Inc., as Borrower, The Lenders Party
Hereto from Time to Time, as Lenders, and Union Bank of California, N.A., as
Administrative Agent and as Issuing Lender, dated November 29, 2005.

 

Subordinated
Credit Agreement among Cano Petroleum, Inc., as Borrower, The Lenders
Party Hereto From Time to Time, as Lenders, and Energy Components SPC EEP
Energy Exploration and Production Segregated Portfolio, as Administrative Agent,
dated November 29, 2005.

 

Guaranty
Agreement by and among Ladder Companies Inc., Square One Energy, Inc.,
W.O. Energy of Nevada, Inc., WO Energy, Inc., W.O. Operating Company,
Ltd. and W.O. Production Company, Ltd. in favor of Union Bank of California, N.A.,
as Administrative Agent, dated November 29, 2005.

 

Guaranty
Agreement by and among Ladder Companies Inc., Square One Energy, Inc.,
W.O. Energy of Nevada, Inc., WO Energy, Inc., W.O. Operating Company,
Ltd. and W.O. Production Company, Ltd. in favor of Energy Components SPC EEP
Energy Exploration and Production Segregated Portfolio, as Administrative
Agent, dated November 29, 2005.

 

Escrow
Agreement by and among Cano Petroleum, Inc., Miles O’Loughlin, Scott White
and The Bank of New York Trust Company, N.A., as Escrow Agent, dated November 29,
2005.

 

Pledge
Agreement by and among Cano Petroleum, Inc., W.O. Energy of Nevada, Inc.
and WO Energy, Inc. in favor of Union Bank of California, N.A., as
Administrative Agent, dated November 29, 2005.

 

Security
Agreement by and among Cano Petroleum, Inc., Ladder Companies Inc., Square
One Energy, Inc., W.O. Energy of Nevada, Inc., WO Energy, Inc.,
W.O. Operating Company, Ltd. and W.O. Production Company, Ltd. in favor of
Union Bank of California, N.A., as Administrative Agent, dated November 29,
2005.

 

Cano
Petroleum, Inc. 2005 Long-Term Incentive Plan.

 

Form of
Stock Option Agreement.

 

Summary
of terms of purchase of overriding royalty interests by Cano Petroleum, Inc.
from THEprivate Energy Company, Inc. dated December 27, 2005.

 

Summary
Sheet:  Director Compensation.

 

Employment
Agreement between Cano Petroleum, Inc. and S. Jeffrey Johnson effective January 1,
2006.

 

Amendment
to Employment Agreement of Michael J. Ricketts effective January 1, 2006.

 

5

 

Amendment
to Employment Agreement of Thomas Cochrane effective January 1, 2006.

 

Amendment
to Employment Agreement of James K. Teringo, Jr. effective January 1,
2006.

 

Amendment
No. 1 dated February 24, 2006, to the $100,00,000 Credit Agreement
among Cano Petroleum, Inc., as Borrower, The Lenders Party Hereto From
Time to Time as Lenders and Union Bank of California, N.A., as Administrative
Agent and as Issuing Lender dated November 29, 2005.

 

Gas Purchase Agreement dated 5-2-90 Between Maple Gas Corporation
(Buyer) and Myriad Resources Corporation (Seller).

 

Gas Purchase and Sales Agreement dated 2-1-74 between Phillips
Petroleum Company (Buyer) and Sohio Petroleum Company (Seller).

 

Gas Purchase Contract dated 11-1-87 between George A. Smith
(Seller) and Westar Transmission Company [now Oneok Field Services] (Buyer).

 

Gas Purchase Contract dated January 14, 1998, between Myriad
Resources Corporation (Seller) and GPM Gas Corporation (Buyer).

 

Gas Services and/or Purchase Agreement dated 7-20-99, by and between
Myriad Resources Corporation (Owner) and Dynegy Midstream Services).

 

Gas Purchase Contract dated May 10, 1990, by and between Myriad
Resources, as Seller, and Phillips 66 Natural Gas Company, as Buyer, covering Section 94,
Block B-2, H&GN RR Company Survey, Gray County, Texas.

 

Gas Purchase Contract dated 10-31-95, between GPM Gas Corporation
(Buyer) and Pamtex, Inc., et al (Seller).

 

Gas Purchase Contract dated 11-20-92 (Contract No. PAM0548-00R),
between Rio Petroleum, Inc. (Seller) and GPM Gas Corporation (Buyer); as
amended by instruments dated 6-1-99, 11-2-98 and 12-16-97.

 

Gas Purchase Agreement dated March 1, 2003, by and between Oneok
Texas Field Services, LP (Buyer), and Myriad Resources Corporation (Seller) covering
the E/2NW/4 and W/2NE/4, Section 67, Block 4, I&GN Survey, Carson
County, Texas.

 

Gas Purchase Contract dated June 23, 1994, by and between Myriad
Resources Corporation, as Seller, and GPM Gas Corporation, as Buyer, covering
the NE/4 Section 33, Block B-2, H&GN Survey, Gray County, Texas.

 

6

 

Casinghead Gas Contract dated February 23, 1949, by and between
Danciger Oil & Refining Company and Phillips Petroleum Company, as
amended and extended.

 

Gas Purchase Contract dated 8-13-96, between GPM Gas Corporation
(Buyer) and Myriad Resources Corporation (Seller). Covers Section 3, J.T.
Sneed Survey.

 

Agreement dated June 25, 1928, by and between Roxana Petroleum
Corporation and Danciger Oil & Refining Company of Texas covering the
E 80 acres of SW/4, Section 5, Block 1, ACH&B Survey, Gray
County, Texas.

 

Gas Purchase Contract dated 8-13-96, between GPM Gas Corporation
(Buyer) and Myriad Resources Corporation (Seller). Covers Section 3, J.T.
Sneed Survey.

 

Gas Purchase Contract dated 10-1-04, between Oneok Texas Field
Services, L.P. (Buyer) and Pamtex, Inc. (Seller). /4 and the E/2 NW/4, Section 127,
Block 3, I&GN RR Co. Survey.

 

Agreement dated June 25, 1928, by and between Roxana Petroleum
Corporation and Danciger Oil & Refining Company of Texas covering the
E 80 acres of SW/4, Section 5, Block 1, ACH&B Survey, Gray
County, Texas.

 

Gas Purchase Contract dated May 10, 1990, by and between Myriad
Resources, as Seller, and Phillips 66 Natural Gas Company, as Buyer, covering Section 94,
Block B-2, H&GN RR Company Survey, Gray County, Texas.

 

Casinghead Gas Contract dated February 23, 1949, by and between
Danciger Oil & Refining Company and Phillips Petroleum Company, as
amended and extended.

 

Asset Purchase and Sale Agreement among Myriad Resources Corporation,
Westland Energy Company, and PAMTEX, a Texas general partnership composed of
PAMTEX GP1 Ltd. and PAMTEX GP2 Ltd. as sellers, and the Borrower as the
purchaser and dated April 25, 2006, as assigned from the Borrower to
Pantwist, LLC

 

7Exhibit 10.9

 

SUPPLEMENT NO. 1 dated as of April 28, 2006 (the “Supplement”),
to the Guaranty Agreement dated as of November 29, 2005 (as amended,
supplemented or otherwise modified from time to time, the “Guaranty Agreement”), among 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 Credit Agreement dated as of November 29, 2005 (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 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.

 

2

 

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.

 

	
   

  	
  NEW
  GUARANTOR:

  
	
   

  	
   

  
	
   

  	
  PANTWIST, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Jeffrey Johnson

  	
   

  
	
   

  	
   

  	
  S. Jeffrey Johnson

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
    Address of New Guarantor:

  
	
   

  	
  309 West 7th Street, Suite 1600

  
	
   

  	
  Fort Worth, Texas 76102

  
	
   

  	
   

  
	
   

  	
  ADMINISTRATIVE
  AGENT:

  
	
   

  	
   

  
	
   

  	
  UNION BANK OF CALIFORNIA, N.A., as

  Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kimberly Coil

  	
   

  
	
   

  	
   

  	
  Kimberly Coil

  
	
   

  	
   

  	
  Vice President

  

 

3

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