EX-10.13






GUARANTY




THIS GUARANTY (this “Guaranty”) is made as of the 28th day of September, 2006, by ESCONDE
ENERGY LLC, a Texas limited liability company (“Guarantor”), in favor of BASELINE CAPITAL, INC., a
Texas corporation (“Lender”);



WITNESSETH:




WHEREAS, pursuant to that certain Loan Agreement dated of even date herewith among Esconde
Resources LP, as Borrower (the “Borrower”), Esconde Energy LLC, as Guarantor, and BaseLine Capital,
Inc., as Lender (as the same may be amended, restated, supplemented or otherwise modified from time
to time, the “Loan Agreement”), the Lender has agreed to make loans to Borrower upon the terms and
subject to the conditions set forth therein, to be evidenced by the Notes issued by the Borrower
thereunder.



WHEREAS, it is a condition precedent to Lender executing the Loan Agreement that Guarantor
execute and deliver this Guaranty whereby Guarantor shall guarantee the payment when due, subject
to Section 9 hereof, of all Guaranteed Obligations as defined below.



WHEREAS, Guarantor is the general partner of Borrower.



WHEREAS, in consideration of the financial and other support that Borrower has provided, and
such financial and other support as Borrower may in the future provide, to Guarantor, and in order
to induce Lender to enter into the Loan Agreement, and because Guarantor has determined that
executing this Guaranty is in its interest and to its financial benefit, Guarantor is willing to
guarantee the obligations of Borrower under the Loan Agreement, the Notes and the other Loan
Documents.



NOW, THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:



SECTION l.1. Selected Terms Used Herein.



“Guaranteed Obligations” is defined to mean (i) all indebtedness, obligations and liabilities
of Borrower to Lender arising out of or pursuant to the provisions of the Loan Agreement, the Notes
and the other Loan Documents, (ii) all indebtedness, obligations and liabilities of Borrower to
Lender of any kind or character now existing or hereafter arising, whether direct, indirect,
related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint and
several, and regardless of whether such indebtedness, obligations and liabilities may, prior to
their acquisition by Lender, be or have been payable to or in favor of a third party and
subsequently acquired by Lender (it being contemplated that Lender may make such acquisitions from
third parties), including without limitation all indebtedness, obligations and liabilities of
Borrower to Lender now existing or hereafter arising by note, draft, acceptance, guaranty,
endorsement, letter of credit, assignment, purchase, overdraft, discount, indemnity agreement or
otherwise, (iii) all accrued but unpaid interest on any of the indebtedness described in (i) and
(ii) above, (iv) all obligations of Borrower to Lender under any documents evidencing, securing,
governing and/or pertaining to all or any part of the indebtedness described in (i), (ii) or (iii)
above, (v) all costs and expenses incurred by Lender in connection with the collection and
administration of all or any part of the indebtedness and obligations described in (i), (ii), (iii)
or (iv) above or the protection or preservation of, or realization upon, the collateral securing
all or any part of such indebtedness and obligations, including without limitation all reasonable
attorneys’ fees, and (vi) all renewals, extensions, modifications and rearrangements of the
indebtedness and obligations described in (i), (ii), (iii), (iv) and (v) above.



SECTION 1.2. Terms in Loan Agreement. Other capitalized terms used herein but not
defined herein shall have the meaning set forth in the Loan Agreement.



SECTION 2.1. Representations and Warranties. Guarantor represents and warrants
that:




(a) Guarantor is a limited liability company duly and properly organized, validly
existing and in good standing under the laws of its jurisdiction of organization and has all
requisite authority to conduct its business in each jurisdiction in which its business is
conducted.




(b) Guarantor has the power and authority and legal right to execute and deliver this
Guaranty and to perform its obligations hereunder. The execution and delivery by Guarantor
of this Guaranty and the performance of its obligations hereunder have been duly authorized,
and this Guaranty constitutes a legal, valid and binding obligation of Guarantor enforceable
against it in accordance with its terms, except as enforceability may be limited by general
principles of equity and bankruptcy, insolvency or similar laws affecting the enforcement of
creditors’ rights generally.




(c) Neither the execution and delivery by Guarantor of this Guaranty, nor the
consummation of the transactions herein contemplated, nor compliance with the provisions
hereof will violate (i) any law, rule, regulation, order, writ, judgment, injunction, decree
or award binding on it, or (ii) the provisions of any indenture, instrument or agreement to
which it is a party or is subject, or by which it, or its property, is bound, or conflict
with or constitute a default thereunder, or result in, or require, the creation or
imposition of any Lien in, of or on the property of Guarantor pursuant to the terms of any
such indenture, instrument or agreement. No order, consent, adjudication, approval,
license, authorization, or validation of, or filing, recording or registration with, or
exemption by, or other action in respect of any governmental or public body or authority, or
any subdivision thereof, which has not been obtained by it, is required to be obtained by it
in connection with the execution and delivery of this Guaranty or the performance by it of
its obligations hereunder or the legality, validity, binding effect or enforceability of
this Guaranty.



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SECTION 2.2. Covenants.




(a) Guarantor covenants that, so long as any of the Guaranteed Obligations shall remain
unpaid, that it will, and, if necessary, will enable Borrower to, fully comply with those
covenants and agreements set forth in the Loan Agreement.




(b) Neither the execution and delivery by Guarantor of this Guaranty, nor the
consummation of the transactions herein contemplated, nor compliance with the provisions
hereof will violate (i) any law, rule, regulation, order, writ, judgment, injunction, decree
or award binding on it, or (ii) the provisions of any indenture, instrument or agreement to
which it is a party or is subject, or by which it, or its property, is bound, or conflict
with or constitute a default thereunder, or result in, or require, the creation or
imposition of any Lien in, of or on the property of Guarantor pursuant to the terms of any
such indenture, instrument or agreement. No order, consent, adjudication, approval,
license, authorization, or validation of, or filing, recording or registration with, or
exemption by, or other action in respect of any governmental or public body or authority, or
any subdivision thereof, which has not been obtained by it, is required to be obtained by it
in connection with the execution and delivery of this Guaranty or the performance by it of
its obligations hereunder or the legality, validity, binding effect or enforceability of
this Guaranty.



SECTION 3. The Guaranty. Subject to Section 9 hereof, Guarantor hereby absolutely
and unconditionally guarantees, as primary obligor and not as surety, the full and punctual payment
(whether at stated maturity, upon acceleration or early termination or otherwise, and at all times
thereafter) and performance of the Guaranteed Obligations, including without limitation any such
Guaranteed Obligations incurred or accrued during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, whether or not allowed or allowable in such proceeding.
Upon failure by Borrower to pay punctually any such amount, Guarantor agrees that it shall
forthwith on demand pay to Lender the amount not so paid at the place and in the manner specified
in the Loan Agreement, the Notes or the relevant Loan Document, as the case may be. This Guaranty
is a guaranty of payment and not of collection. Guarantor waives any right to require Lender to
sue Borrower, any other guarantor, or any other obligor obligated for all or any part of the
Guaranteed Obligations, or otherwise to enforce its payment against any Collateral securing all or
any part of the Guaranteed Obligations. This Guaranty is continuing and, except as provided in
Section 9 hereof, unlimited as to the amount, and is cumulative to and does not supersede any other
guaranties.



SECTION 4. Guaranty Unconditional. Subject to Section 9 hereof, the obligations of
Guarantor hereunder shall be unconditional and absolute and, without limiting the generality of the
foregoing, shall not be released, discharged or otherwise affected by:




(a) any extension, renewal, settlement, compromise, waiver or release in respect of any
of the Guaranteed Obligations, by operation of law or otherwise, or any obligation of any
other guarantor of any of the Guaranteed Obligations, or any default, failure or delay,
willful or otherwise, in the payment or performance of the Guaranteed Obligations;




(b) any modification or amendment of or supplement to the Loan Agreement, the Notes or
any other Loan Document;




(c) any release, nonperfection or invalidity of any direct or indirect security for any
obligation of Borrower under the Loan Agreement, the Notes, any other Loan Document, or any
obligations of any other guarantor of any of the Guaranteed Obligations, or any action or
failure to act by Lender with respect to any Collateral securing all or any part of the
Guaranteed Obligations;




(d) any change in the existence, structure, name or ownership of Borrower or any other
guarantor of any of the Guaranteed Obligations, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting Borrower, or any other guarantor of the
Guaranteed Obligations, or its assets or any resulting release or discharge of any
obligation of Borrower, or any other guarantor of any of the Guaranteed Obligations;




(e) the existence of any claim, setoff or other rights which Guarantor may have at any
time against Borrower, any other guarantor of any of the Guaranteed Obligations, any Lender
or any other party, whether in connection herewith or any unrelated transactions;




(f) any invalidity or unenforceability relating to or against Borrower, or any other
guarantor of any of the Guaranteed Obligations, for any reason related to the Loan
Agreement, any other Loan Document, or any provision of applicable law or regulation
purporting to prohibit the payment by Borrower, or any other guarantor of the Guaranteed
Obligations, of the principal of or interest on the Notes or any other amount payable by
Borrower under the Loan Agreement, the Notes, or any other Loan Document; or




(g) any other act or omission to act or delay of any kind by Borrower, any other
guarantor of the Guaranteed Obligations, Lender or any other party or any other circumstance
whatsoever which might, but for the provisions of this paragraph, constitute a legal or
equitable discharge of Guarantor’s obligations hereunder.



SECTION 5. Discharge Only Upon Payment In Full: Reinstatement In Certain
Circumstances. Guarantor’s obligations hereunder shall remain in full force and effect until
all Guaranteed Obligations shall have been indefeasibly paid in full and any obligation of Lender
to make Advances under the Loan Agreement shall have terminated or expired. If at any time any
payment of the principal of or interest on the Notes or any other amount payable by Borrower,
Guarantor or any other party under the Loan Agreement or any other Loan Document is rescinded or
must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of
Borrower, Guarantor or otherwise, Guarantor’s obligations hereunder with respect to such payment
shall be reinstated as though such payment had been due but not made at such time.



SECTION 6. Waivers. Guarantor irrevocably waives acceptance hereof, presentment,
demand, protest, notice of acceleration of or the intent to accelerate the Guaranteed Obligations
and, to the fullest extent permitted by law, any notice not provided for herein, as well as any
requirement that at any time any action be taken by any person or entity against Borrower,
Guarantor, any other guarantor of any of the Guaranteed Obligations, any other person or entity, or
any property. Guarantor also irrevocably waives the provisions of Section 17.001 of the Texas
Civil Practice and Remedies Code, of Rule 31 of the Texas Rules of Civil Procedure and of Chapter
34 of the Texas Business and Commerce Code, as any of the same may be amended.



SECTION 7. Subrogation. Guarantor hereby agrees not to assert any right, claim or
cause of action, including, without limitation, a claim for subrogation, reimbursement,
indemnification or otherwise, against Borrower arising out of or by reason of this Guaranty or the
obligations hereunder, including, without limitation, the payment or securing or purchasing of any
of the Guaranteed Obligations by Guarantor unless and until the Guaranteed Obligations are
indefeasibly paid in full and any commitment to lend under the Loan Agreement and any other Loan
Documents is terminated.



SECTION 8. Stay of Acceleration. If acceleration of the time for payment of any of
the Guaranteed Obligations is stayed upon the insolvency, bankruptcy or reorganization of Borrower,
all such amounts otherwise subject to acceleration under the terms of the Loan Agreement, the Notes
or any other Loan Document shall nonetheless be payable by Guarantor hereunder forthwith on demand
by Lender.



SECTION 9. Limitation on Obligations.




(a) The provisions of this Guaranty are severable, and in any action or proceeding
involving any state corporate law, or any state, federal or foreign bankruptcy, insolvency,
reorganization or other law affecting the rights of creditors generally, if the obligations
of Guarantor under this Guaranty would otherwise be held or determined to be avoidable,
invalid or unenforceable on account of the amount of Guarantor’s liability under this
Guaranty, then, notwithstanding any other provision of this Guaranty to the contrary, the
amount of such liability shall, without any further action by Guarantor or Lender, be
automatically limited and reduced to the highest amount that is valid and enforceable as
determined in such action or proceeding (such highest amount determined hereunder being
Guarantor’s “Maximum Liability”). This Section 9(a) with respect to the Maximum Liability of
Guarantor is intended solely to preserve the rights of Lender hereunder to the maximum
extent not subject to avoidance under applicable law, and neither Guarantor nor any other
person or entity shall have any right or claim under this Section 9(a) with respect to the
Maximum Liability, except to the extent necessary so that the obligations of Guarantor
hereunder shall not be rendered voidable under applicable law.




(b) Guarantor agrees that the Guaranteed Obligations may at any time and from time to
time exceed the Maximum Liability of Guarantor, without impairing this Guaranty or affecting
the rights and remedies of Lender hereunder.



SECTION 10. Application of Payments. All payments received by Lender hereunder
shall be applied by Lender to payment of the Guaranteed Obligations in the following order unless a
court of competent jurisdiction shall otherwise direct:




(a) FIRST, to payment of all costs and expenses of Lender incurred in connection with
the collection and enforcement of the Guaranteed Obligations or of any security interest
granted to Lender in connection with any Collateral securing the Guaranteed Obligations;




(b) SECOND, to payment of that portion of the Guaranteed Obligations constituting
accrued and unpaid interest and fees;




(c) THIRD, to payment of the principal of the Guaranteed Obligations then due and
unpaid from Borrower to Lender in accordance with the amount of such principal; and




(d) FOURTH, to payment of any Guaranteed Obligations other than those listed above.



SECTION 11. Notices. All notices, requests and other communications to any party
hereunder shall be given or made and be effective as provided in the Loan Agreement.



SECTION 12. No Waivers. No failure or delay by Lender in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise of any other right,
power or privilege. The rights and remedies provided in this Guaranty, the Loan Agreement, the
Notes and other Loan Documents shall be cumulative and not exclusive of any rights or remedies
provided by law.



SECTION 13. No Duty to Advise. Guarantor assumes all responsibility for being and
keeping itself informed of Borrower’s financial condition and assets, and of all other
circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature,
scope and extent of the risks that Guarantor assumes and incurs under this Guaranty, and agrees
that Lender has no duty to advise Guarantor of information known to it regarding those
circumstances or risks.



SECTION 14. Successors and Assigns. This Guaranty is for the benefit of Lender and
its successors and assigns and in the event of an assignment of any amounts payable under the Loan
Agreement, the Notes or the other Loan Documents, the rights hereunder, to the extent applicable to
the indebtedness so assigned, shall be transferred with such indebtedness. This Guaranty shall be
binding upon Guarantor and its successors and permitted assigns.



SECTION 15. Changes in Writing. Neither this Guaranty nor any provision hereof may
be changed, waived, discharged or terminated orally, but only in writing signed by Guarantor and
Lender.



SECTION 16. Costs of Enforcement. Guarantor agrees to pay all costs and expenses
including, without limitation, all court costs and attorneys’ fees and expenses paid or incurred by
Lender in endeavoring to collect all or any part of the Guaranteed Obligations from, or in
prosecuting any action against, Borrower, Guarantor or any other guarantor of all or any part of
the Guaranteed Obligations.



SECTION 17. Subordination. Guarantor hereby agrees that until the Guaranteed
Obligations are paid in full and any commitment of Lender to lend under the Loan Agreement or any
other Loan Document is terminated, Guarantor will not, without the prior written consent of Lender,
demand, take or receive from Borrower by setoff or any other manner, payment of any indebtedness,
now or at any time or times hereafter owing by Borrower to Guarantor, and all such indebtedness of
Borrower to Guarantor shall be subordinate, junior and inferior to any indebtedness now or
hereafter owing by Borrower to Lender. Guarantor further hereby agrees that any security
interests, liens or encumbrances which Guarantor now has or from time to time may have upon any of
the assets of Borrower shall be made subordinate, junior and inferior and postponed in priority,
operation and effect to any security interest of Lender in such assets.



SECTION 18. GOVERNING LAW; CONSENT TO SERVICE; JURISDICTION; AND WAIVER OF JURY
TRIAL. THIS GUARANTY HAS BEEN PREPARED, IS BEING EXECUTED AND DELIVERED, AND IS INTENDED TO BE
PERFORMED, IN THE STATE OF TEXAS. THE SUBSTANTIVE LAWS OF SUCH STATE AND THE APPLICABLE FEDERAL
LAWS OF THE UNITED STATES OF AMERICA SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS GUARANTY, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.



SECTION 19. Taxes, etc. All payments required to be made by Guarantor hereunder
shall be made without setoff or counterclaim and free and clear of and without deduction or
withholding for or on account of, any present or future taxes, levies, imposts, duties or other
charges of whatsoever nature imposed by any government or any political or taxing authority thereof
(but excluding income and franchise taxes), provided, however, that if Guarantor is required by law
to make such deduction or withholding, Guarantor shall forthwith (i) pay to Lender such additional
amount as results in the net amount received by Lender equaling the full amount which would have
been received by Lender had no such deduction or withholding been made, (ii) pay the full amount
deducted to the relevant authority in accordance with applicable law, and (iii) furnish to Lender
certified copies of official receipts evidencing payment of such withholding taxes within 30 days
after such payment is made.



SECTION 20. Setoff. Without limiting the rights of Lender under applicable law, if
all or any part of the Guaranteed Obligations is then due, whether pursuant to the occurrence of an
Event of Default or otherwise, then Guarantor authorizes Lender to apply any sums standing to the
credit of Guarantor with Lender toward the payment of the Guaranteed Obligations.



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IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed by its authorized
officer as of the day and year first above written.



GUARANTOR:




ESCONDE ENERGY LLC



	 	 	 
	By: /s/
	 	Paul W. Heard

	 
	 	 

	 	 	Paul W. Heard, Managing Member

	By: /s/
	 	Ronnie L. Steinocher

	 
	 	 

	 	 	Ronnie L. Steinocher, Managing Member








	 	 	By: Pierce-Hamilton Energy Partners LP,






Managing Member




By: Muscoda Hill Energy LLC,




its general partner



	 	 	 
	By: /s/
	 	Lisa P. Hamilton

	 
	 	 

	 	 	Lisa P. Hamilton, President








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