**Exhibit 10.46**

 

**GUARANTY AGREEMENT**

 

**THIS GUARANTY AGREEMENT**(“Guaranty”) is made as of the 12th day of June, 2003 byGuarantor (as hereinafter defined) for the benefit of Lender (as hereinafterdefined).

 

# 1.*                                      **Definitions**. *As used in this Guaranty, the following terms shallhave the meanings indicated below:

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## (a)                                  The term “Lender” shall meanCOMMERCE NATIONAL BANK, a branch of Lubbock National Bank, a national bankingassociation, whose address for notice purposes is the following:

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|   | 5300 Bee Cave  Road              |
|--------|----------------------------------|
|   | Austin, TX  78746           |
|   | Attn:  Mr. Brannin Prideaux |

 

## (b)                                 The term “Borrower” shall mean thefollowing:

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SCHLOTZSKY’S NAMFFUNDING, LLC, a Delaware limited liability company

 

## (c)                                  The term “Guarantor” shall meanSCHLOTZSKY’S, INC., a Texas corporation, whose address for notice purposes isthe following:

 
|   | 203 Colorado Street          |
|--------|------------------------------|
|   | Austin, Texas 78701          |
|   | Attn:  Legal Department |

 

## (d)                                 The term “Guaranteed Indebtedness”shall mean (i) all indebtedness, obligations and liabilities of Borrower toLender of any kind or character, now existing or hereafter arising, whetherdirect, indirect, related, unrelated, fixed, contingent, liquidated,unliquidated, joint, several or joint and several, and regardless of whethersuch indebtedness, obligations and liabilities may, prior to their acquisitionsby Lender, be or have been payable to or in favor of a third party andsubsequently acquired by Lender (it being contemplated that Lender may makesuch acquisitions from third parties), including without limitation allprincipal indebtedness owing by Borrower to Lender now existing or hereafterarising under or evidenced by that one certain Promissory Note (the “Note”)dated June 12, 2003 in the original principal amount of $4,300,000.00, executedby Borrower and payable to the order of Lender, all indebtedness, obligationsand liabilities of Borrower to Lender now existing or hereafter arising bynote, draft, acceptance, guaranty, endorsement, letter of credit, assignment,purchase, overdraft, discount, indemnity agreement or otherwise, (ii) allaccrued but unpaid interest of any of the indebtedness described in (i) above,(iii) all obligations of Borrower to Lender under any documents evidencing,securing, governing and/or pertaining to all or any part of the indebtednessand obligations described in (i), (ii) and (iii) above or the protection orpreservation of, or realization upon, the collateral securing all or any partof such indebtedness and obligations, including without limitation allreasonable attorneys’ fees, and (v) all renewals, extensions, modifications andrearrangements of the indebtedness and obligations described in (i), (ii), and(iii) and (iv) above.

 

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# 2.*                                      **Obligations*.  As aninducement to Lender to extend or continue to extend credit and other financialaccommodations to Borrower, Guarantor, for value received, does herebyunconditionally and absolutely guarantee the prompt and full payment andperformance of the Guaranteed Indebtedness when due or declared to be due and atall times thereafter.

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# 3.                                       *Character of Obligation*.

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(a)                                  Thisis an absolute, continuing and unconditional guaranty of payment and not ofcollection and if at any time or from time to time there is no outstandingGuaranteed Indebtedness, the obligations of Guarantor with respect to any andall Guaranteed Indebtedness incurred thereafter shall not be affected.  This Guaranty and the Guarantor’sobligations hereunder are irrevocable and, in the event of Guarantor’s death,shall be binding upon Guarantor’s estates. All of the Guaranteed Indebtedness shall be conclusively presumed tohave been made or acquired in acceptance hereof.  Guarantor shall be liable, jointly and severally, with Borrowerand any other guarantor of all or any part of the Guaranteed Indebtedness.

 

(b)                                 Lendermay, at its sole discretion and without impairing its rights hereunder, (i)apply any payments on the Guaranteed Indebtedness that Lender receives fromBorrower or any other source other than Guarantor to that portion of theGuaranteed Indebtedness, if any, not guaranteed hereunder, and (ii) apply anyproceeds it receives as a result of the foreclosure or other realization on anycollateral for the Guaranteed Indebtedness to that portion, if any, of theGuaranteed Indebtedness not guaranteed hereunder or to any other indebtednesssecured by such collateral.

 

(c)                                  Guarantoragrees that its obligations hereunder shall not be released, diminished,impaired, reduced or affected by the existence of any other guaranty or thepayment by any other guarantor of all or any part of the GuaranteedIndebtedness and, in the event Paragraph 2 above  partially limits Guarantor’s obligationsunder this Guaranty, Guarantor’s obligations hereunder shall continue untilLender has received payment in full of the Guaranteed Indebtedness.

 

(d)                                 Guarantor’sobligations hereunder shall not be released, diminished, impaired, reduced oraffected by, nor shall any provision contained herein be deemed to be alimitation upon, the amount of credit which Lender may extend to Borrower, thenumber of transactions between Lender and Borrower, payments by Borrower toLender or Lender’s allocation of payments by Borrower.

 

(e)                                  Withoutfurther authorization from or notice to Guarantor, Lender may compromise,accelerate, or otherwise alter the time or manner for the payment of theGuaranteed Indebtedness, increase or reduce the rate of interest thereon, orrelease or add any one or more guarantors or endorsers, or allow substitutionof or withdrawal of collateral or other security and release collateral andother security or subordinate the same.

 

# 4.                                       *Representations and Warranties*. Guarantor hereby represents and warrants the following to Lender:

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(a)                                  ThisGuaranty may reasonably be expected to benefit, directly or indirectly, Guarantor,and (i) if Guarantor is a corporation, the Board of Directors of Guarantor hasdetermined that this Guaranty may reasonably be expected to benefit, directlyor indirectly,

 

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Guarantor, or (ii) if Guarantor is a partnership, the requisite numberof its partners have determined that this Guaranty may reasonably be expectedto benefit, directly or indirectly, Guarantor; and

 

(b)                                 Guarantoris familiar with, and has independently reviewed the books and recordsregarding, the financial condition of Borrower and is familiar with the valueof any and all collateral intended to be security for the payment of all or anypart of the Guaranteed Indebtedness; provided, however, Guarantor is notrelying on such financial condition or collateral as an inducement to enterinto this Guaranty; and

 

(c)                                  Guarantorhas adequate means to obtain from Borrower on a continuing basis informationconcerning the financial condition of Borrower and Guarantor is not relying onLender to provide such information to Guarantor either now or in the future;and

 

(d)                                 Guarantorhas the power and authority to execute, deliver and perform this Guaranty andany other agreements executed by Guarantor contemporaneously herewith, and theexecution, delivery and performance of this Guaranty and any other agreementsexecuted by Guarantor contemporaneously herewith do not and will not violate(i) any agreement or instrument to which Guarantor is a party; (ii) any law,rule, regulation or order of any governmental authority to which Guarantor issubject, or (iii) its articles or certificate of incorporation or bylaws, ifGuarantor is a corporation, or its partnership agreement, if Guarantor is apartnership; and

 

(e)                                  NeitherLender nor any other party has made any representation, warranty or statementto Guarantor in order to induce Guarantor to execute this Guaranty; and

 

(f)                                    Thefinancial statements and other financial information regarding Guarantorheretofore and hereafter delivered to Lender are and shall be true and correctin all material respects and fairly present the financial position of Guarantoras of the dates thereof, and no material adverse change has occurred in thefinancial condition of Guarantor reflected in the financial statements andother financial information regarding Guarantor heretofore delivered to Lendersince the date of the last statement thereof; and

 

(g)                                 Asof the date hereof, and after giving effect to this Guaranty and theobligations evidenced hereby, (i) Guarantor is and will be solvent, (ii) thefair saleable value of Guarantor’s assets exceeds and will continue to exceedits liabilities (both fixed and contingent), (iii) Guarantor is and willcontinue to be able to pay its debts as they mature, and (iv) if Guarantor isnot an individual, Guarantor has and will continue to have sufficient capitalto carry on its business and all businesses in which it is about to engage.

 

# 5.                                       *Covenants*.  Guarantorhereby covenants and agrees with Lender as follows:

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(a)                                  Guarantorshall not, so long as its obligations under this Guaranty continue, transfer orpledge any material portion of its assets for less than full and adequateconsideration; and

 

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(b)                                 Guarantorshall promptly furnish to Lender at any time and from time to time suchfinancial statements and other financial information of Guarantor as the Lendermay require, in form and substance satisfactory to Lender; and

 

(c)                                  Guarantorshall comply with all terms and provisions of the Loan Documents that apply toGuarantor; and

 

(d)                                 Guarantorshall promptly inform Lender of (i) any litigation or governmentalinvestigation against Guarantor or affecting any security for all or any partof the Guaranteed Indebtedness or this Guaranty which, if determined adversely,could reasonably be expected to have a material adverse effect upon thefinancial condition of Guarantor or upon such security or might cause a defaultunder any of the Loan Documents, and (ii) any material adverse change in thefinancial condition of Guarantor.

 

# 6.                                       *Event of Default*.  Each of thefollowing shall constitute an Event of Default under the Loan Documents:

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(a)                                  Theoccurrence of any event (and the expiration of any applicable cure period)which permits the acceleration of the maturity of any indebtedness in an amountof $250,000.00 or more owing by Guarantor to any third party under anyagreement or understanding.

 

# 7.                                       *Consent and Waiver*.

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(a)                                  Guarantorwaives (i) promptness, diligence and notice of acceptance of this Guaranty andnotice of the incurring of any obligation, indebtedness or liability to whichthis Guaranty applies or may apply and waives presentment for payment, noticeof nonpayment, protest, demand, notice of protest, notice of intent toaccelerate, notice of acceleration, notice of dishonor, diligence inenforcement and indulgences of every kind, and (ii) the taking of any otheraction by Lender, including without limitation giving any notice of default orany other notice to, or making any demand on, Borrower, any other guarantor ofall or any part of the Guaranteed Indebtedness or any other party.

 

(b)                                 Guarantorwaives any rights Guarantor has under, or any requirements imposed by, Chapter34 of the Texas Business and Commerce Code, as in effect on the date of thisGuaranty or as it may be amended from time to time.

 

(c)                                  Lendermay at any time, without the consent of or notice to Guarantor, withoutincurring responsibility to Guarantor and without impairing, releasing,reducing or affecting the obligations of Guarantor hereunder: (i) change themanner, place or terms of payment of all or any part of the GuaranteedIndebtedness, or renew, extend, modify, rearrange or alter all or any part ofthe Guaranteed Indebtedness; (ii) change the interest rate accruing on any ofthe Guaranteed Indebtedness (including without limitation any periodic changein such interest rate that occurs because such Guaranteed Indebtedness accruesinterest at a variable rate which may fluctuate from time to time); (iii) sell,exchange, release, surrender, subordinate, realize upon or otherwise deal within any manner and in any order any collateral for all or any part of theGuaranteed Indebtedness or this Guaranty or setoff against all or any part ofthe Guaranteed Indebtedness; (iv) neglect, delay, omit, fail or refuse to takeor prosecute any action for the collection of all or any part of the GuaranteedIndebtedness or this Guaranty or to take or

 

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prosecute any action in connection with any of the Loan Documents; (v)exercise or refrain from exercising any rights against Borrower or others, orotherwise act or refrain from acting; (vi) settle or compromise all or any partof the Guaranteed Indebtedness and subordinate the payment of all or any partof the Guaranteed Indebtedness to the payment of any obligations, indebtednessor liabilities which may be due or become due to Lender or others; (vii) applyany deposit balance, fund, payment, collections through process of law or otherwiseor other collateral of Borrower to the satisfaction and liquidation of theindebtedness or obligations of Borrower to Lender not guaranteed under thisGuaranty; and (viii) apply any sums paid to Lender by Guarantor, Borrower orothers to the Guaranteed Indebtedness in such order and manner as Lender, inits sole discretion, may determine.

 

(d)                                 ShouldLender seek to enforce the obligations of Guarantor hereunder by action in anycourt or otherwise, Guarantor waives any requirement, substantive or procedural,that (i) Lender first enforce any rights or remedies against Borrower or anyother person or entity liable to Lender for all or any part of the GuaranteedIndebtedness, including without limitation that a judgment first be renderedagainst Borrower or any other person or entity, or that Borrower or any otherperson or entity should be joined in such cause, or (ii) Lender first enforcerights against any collateral which shall ever have been given to secure all orany part of the Guaranteed Indebtedness or this Guaranty.  Such waiver shall be without prejudice toLender’s right, at its option, to proceed against Borrower or any other personor entity, whether by separate action or by joinder.

 

(e)                                  Inaddition to any other waivers, agreements and covenants of Guarantor set forthherein, Guarantor hereby further waives and releases all claims, causes ofaction, defenses and offsets for any act or omission of Lender, its directors,officers, employees, representative or agents in connection with Lender’sadministration of the Guaranteed Indebtedness, except for Lender’s willfulmisconduct and gross negligence.

 

# 8.                                       *Obligations Not Impaired*.

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(a)                                  Guarantoragrees that its obligations hereunder shall not be released, diminished,impaired, reduced or affected by the occurrence of any one or more of thefollowing events: (i) the death, disability or lack of corporate power ofBorrower, Guarantor (except as provided in Paragraph 10 herein) or anyother guarantor of all or any part of the Guaranteed Indebtedness, (ii) anyreceivership, insolvency, bankruptcy or other proceedings affecting Borrower,Guarantor or any other guarantor of all or any part of the GuaranteedIndebtedness, or any of their respective property; (iii) the partial or totalrelease or discharge of Borrower or any other guarantor of all or any part ofthe Guaranteed Indebtedness, or any other person or entity from the performanceof any obligation contained in any instrument or agreement evidencing,governing or securing all or any part of the Guaranteed Indebtedness, whetheroccurring by reason of law or otherwise; (iv) the taking or accepting of anycollateral for all or any part of the Guaranteed Indebtedness or this Guaranty;(v) the taking or accepting of any other guaranty for all or any part of theGuaranteed Indebtedness; (vi) any failure by Lender to acquire, perfect orcontinue any lien or security interest on collateral securing all or any partof the Guaranteed Indebtedness or this Guaranty; (vii) the impairment of anycollateral securing all or any part of the Guaranteed Indebtedness or thisGuaranty; (viii) any failure by Lender to sell any collateral securing all orany part of the Guaranteed Indebtedness or this Guaranty in a commerciallyreasonable manner or as otherwise required by law; (ix) any invalidity orunenforceability of or

 

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defect or deficiency in any of the Loan Documents; or (x) any othercircumstance which might otherwise constitute a defense available to, ordischarge of, Borrower or any other guarantor of all or any part of theGuaranteed Indebtedness.

 

(b)                                 ThisGuaranty shall continue to be effective or be reinstated, as the case may be,if at any time any payment of all or any part of the Guaranteed Indebtedness isrescinded or must otherwise be returned by Lender upon the insolvency,bankruptcy or reorganization of Borrower, Guarantor, any other guarantor of allor any part of the Guaranteed Indebtedness, or otherwise, all as though suchpayment had not been made.

 

(c)                                  Inthe event Borrower is a corporation, joint stock association or partnership, oris hereafter incorporated, none of the following shall affect Guarantor’sliability hereunder: (i) the unenforceability of all or any part of theGuaranteed Indebtedness against Borrower by reason of the fact that theGuaranteed Indebtedness exceeds the amount permitted by law; (ii) the act ofcreating all or any part of the Guaranteed Indebtedness is ultra vires; or(iii) the officers or partners creating all or any part of the GuaranteedIndebtedness acted in excess of their authority.  Guarantor hereby acknowledges that withdrawal from, ortermination of, any ownership interest in Borrower now or hereafter owned orheld by Guarantor shall not alter, affect or in any way limit the obligationsof Guarantor hereunder.

 

# 9.                                       *Actions Against Guarantor*.  In the eventof a default in the payment or performance of all or any part of the GuaranteedIndebtedness when such Guaranteed Indebtedness becomes due, whether by itsterms, by acceleration or otherwise, Guarantor shall, without notice or demand,promptly pay the amount due thereon to Lender, in lawful money of the UnitedStates, at Lender’s address set forth in Subparagraph 1(a) above.  One or more successive or concurrent actionsmay be brought against Guarantor, either in the same action in which Borroweris sued or in separate actions, as often as Lender deems advisable.  The exercise by Lender of any right orremedy under this Guaranty or under any other agreement or instrument, at law,in equity or otherwise, shall not preclude concurrent or subsequent exercise ofany other right or remedy.  The booksand records of Lender shall be admissible as evidence in any action orproceeding involving this Guaranty and shall be prima facie evidence ofthe payments made on, and the outstanding balance of, the GuaranteedIndebtedness.

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# 10.                                 *Payment by Guarantor*.  WheneverGuarantor pays any sum which is or may become due under this Guaranty, writtennotice must be delivered to Lender contemporaneously with such payment.  Such notice shall be effective for purposesof this paragraph when contemporaneously with such payment Lender receives suchnotice either by: (a) personal delivery to the address and designateddepartment of Lender identified in Subparagraph 1(a) above, or (b)United States mail, certified or registered, return receipt requested, postageprepaid, addressed to Lender at the address shown in Subparagraph 1(a)above.  In the absence of such notice toLender by Guarantor in compliance with the provisions hereof, any sum receivedby Lender on account of the Guaranteed Indebtedness shall be conclusivelydeemed paid by Borrower.

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# 11.                                 *Death of Guarantor*.  In the eventof the death of Guarantor, the obligations of the deceased Guarantor under thisGuaranty shall continue as an obligation against his estate as to (a) all ofthe Guaranteed Indebtedness that is outstanding on the date of the Guarantor’sdeath, and any renewals or extension thereof, and (b) all loans, advances andother extensions of credit

 

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made to or for the account of Borrower on or after the date ofGuarantor’s death pursuant to an obligation of Lender under a commitment oragreement described in Subparagraph 1(d) above and made to or withBorrower prior to the date of Guarantor’s death.  The terms and conditions of this Guaranty, including withoutlimitation the consents and waivers set forth in Paragraph 7hereof, shall remain in effect with respect to the Guaranteed Indebtednessdescribed in the preceding sentence in the same manner as if Guarantor had notdied.

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# 12.                                 *Notice of Sale*.  In the eventthat Guarantor is entitled to receive any notice under the Uniform CommercialCode, as it exists in the state governing any such notice, of the sale or otherdisposition of any collateral securing all or any part of the GuaranteedIndebtedness or this Guaranty, reasonable notice shall be deemed given whensuch notice is deposited in the United States mail, postage prepaid, at theaddress for Guarantor set forth in Subparagraph 1(c) above, ten(10) days prior to the date any public sale, or after which any private sale,of any such collateral is to be held; provided, however, thatnotice given in any other reasonable manner or at any other reasonable timeshall be sufficient.

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# 13.                                 *Waiver by Lender*.  No delay onthe part of Lender in exercising any right hereunder or failure to exercise thesame shall operate as a waiver of such right. In no event shall any waiver of the provisions of this Guaranty beeffective unless the same be in writing and signed by an officer of Lender, andthen only in the specific instance and for the purpose given.

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# 14.                                 *Successors and Assigns*.  ThisGuaranty is for the benefit of Lender, it successors and assigns.  This Guaranty is binding upon Guarantor andGuarantor’s heirs, executors, administrators, personal representatives andsuccessors, including without limitation any person or entity obligated byoperation of law upon the reorganization, merger, consolidation or other changein the organizational structure of Guarantor.

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# 15.                                 *Costs and Expenses*.  Guarantorshall pay on demand by Lender all costs and expenses, including withoutlimitation all reasonable attorneys’ fees, incurred by Lender in connectionwith the preparation, administration, enforcement and/or collection of thisGuaranty.  This covenant shall survivethe payment of the Guaranteed Indebtedness.

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# 16.                                 *Severability*.  If anyprovision of this Guaranty is held by a court of competent jurisdiction to beillegal, invalid or unenforceable under present or future laws, such provisionshall be fully severable, shall not impair or invalidate the remainder of thisGuaranty and the effect thereof shall be confined to the provision held to beillegal, invalid or unenforceable.

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# 17.                                 *No Obligation*.  Nothingcontained herein shall be construed as an obligation on the part of Lender toextend or continue to extend credit to Borrower.

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# 18.                                 *Amendment*.  Nomodification or amendment of any provision of this Guaranty, nor consent to anydeparture by Guarantor therefrom, shall be effective unless the same shall bein writing and signed by an officer of Lender, and then shall be effective onlyin the specific instance and for the purpose for which given.

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# 19.                                 *Cumulative Rights*.  All rightsand remedies of Lender hereunder are cumulative of each other and every otherright or remedy which Lender may otherwise have at law or in equity or underany instrument or agreement, and the exercise of one or more of such rights orremedies shall not prejudice or impair the concurrent or subsequent exercise ofany other rights

 

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or remedies.  This Guaranty,whether general, specific and/or limited, shall be in addition to and cumulativeof, and not in substitution, novation or discharge of, any and all prior orcontemporaneous guaranty agreements by Guarantor in favor of Lender or assignedto Lender by others.

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# 20.                                 *Governing Law, Venue*.  ThisGuaranty is intended to be performed in the State of Texas.  Except to the extent that the laws of theUnited States may apply to the terms hereof, the substantive laws of the Stateof Texas shall govern the validity, construction, enforcement and interpretationof this Guaranty.  In the event of adispute involving this Guaranty or any other instruments executed in connectionherewith, the undersigned irrevocably agrees that venue for such dispute shalllie in any court of competent jurisdiction in Travis County, Texas.

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# 21.                                 *Compliance with Applicable Usury Laws*. Notwithstanding any other provision of this Guaranty or of anyinstrument or agreement evidencing, governing or securing all or any part ofthe Guaranteed Indebtedness, Guarantor and Lender by its acceptance hereofagree that Guarantor shall never be required or obligated to pay interest inexcess of the maximum non-usurious interest rate as may be authorized byapplicable law for the written contracts which constitute the GuaranteedIndebtedness.  It is the intention ofGuarantor and Lender to confirm strictly to the applicable laws which limitinterest rates, and any of the aforesaid contracts for interest, if and to theextent payable by Guarantor, shall be held to be subject to reduction to themaximum non-usurious interest rate allowed under said law.

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# 22.                                 *Gender*.  Within thisGuaranty, words of any gender shall be held and construed to include the othergender.

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# 23.                                 *Captions*.  The headingsin this Guaranty are for convenience only and shall not define or limit theprovisions hereof.

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# 24.                                 *Right of Revocation*.  Guarantorunderstands and agrees that Guarantor may revoke this Guaranty at any time withrespect to indebtedness or obligations of Borrower incurred after the effectivedate of the revocation by giving Lender written notice that Guarantor will notbe liable hereunder for any indebtedness or obligations of Borrower incurred onor after the effective date of such revocation.  Such revocation shall be deemed to be effective on the 5th  day following written acknowledgement by an officerof the Lender that the Lender received written notice of revocation deliveredeither by:  (a) personal delivery to theaddress and designated department of Lender identified in Subparagraph 1(a)above, or (b) United States mail, registered or certified, return receiptrequested, postage prepaid, addressed to Lender at the address shown in Subparagraph1(a) above.  Notwithstanding suchrevocation, Guarantor shall remain liable on its obligations hereunder untilpayment in full to Lender of (a) all of the Guaranteed Indebtedness that isoutstanding on the effective date of such revocation, and any renewals andextensions thereof, including interest thereon and fees and expenses relatedthereto, that have accrued or been incurred after the effective date of suchrevocation, and (b) all loans, advances and other extensions of credit made toor for the account of Borrower on or after the effective date of suchrevocation pursuant to the obligation of Lender under a commitment or agreementmade to or with Borrower prior to the effective date of such revocation.  The terms and conditions of this Guaranty,including without limitation the consents and waivers set forth in Paragraph7 hereof, shall remain in effect with respect to the GuaranteedIndebtedness described in the preceding sentence in the same manner as if suchrevocation had not been made by Guarantor.

 

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EXECUTED as of thedate first above written.

 
|   | **GUARANTOR:**          |
|--------|-------------------------|
|   |                    |
|   | SCHLOTZSKY’S, INC. |
|   | a Texas corporation     |
|   |                    |
|   |                    |
|   | By:                     | /s/ JOHN C.  WOOLEY |   |
|   |                    | John C. Wooley,  President |   |

 

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