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EXHIBIT 10.4
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EXECUTION VERSION
LIMITED RECOURSE GUARANTY AND SECURITY AGREEMENT
This LIMITED RECOURSE GUARANTY AND SECURITY AGREEMENT (this
"Guaranty"), dated as of September 26, 2007, is executed and
delivered by
RONHOW, LLC, a Georgia limited liability company ("Guarantor"),
in favor of
WELLS FARGO RETAIL FINANCE II, LLC, as collateral agent and
administrative agent
(in such capacity, the "Agent") pursuant to the Loan Agreement
(as defined
below) and in light of the following:
WHEREAS, HAROLD'S STORES, INC., an Oklahoma corporation, and
each of its subsidiaries and affiliates that is a signatory to
the Loan
Agreement ("Borrowers"), Agent, and certain financial
institutions party thereto
("Lenders") have entered into that certain Loan and Security
Agreement, dated
February 5, 2003 (as amended, restated, modified, supplemented,
renewed or
extended from time to time, the "Loan Agreement");
WHEREAS, the undersigned Guarantor has a material interest
in
the financial prospects of the Borrowers in the Guarantor's
capacity as the
Subordinated Lender under the Subordinated Loan Documents, and
as a direct or
indirect owner of a material portion of the capital stock of
each of the
Borrowers;
WHEREAS, as a result of the foregoing, the Guarantor will
benefit from the issuance of certain letters of credit or the
provision of other
similar financial accommodations pursuant to the Loan Agreement
as contemplated
pursuant to Amendment No. 7 to the Loan and Security Agreement,
dated of even
date herewith (the "Amendment"); and
WHEREAS, in order to induce Agent to enter into the
Amendment
and to extend the financial accommodations to Borrowers pursuant
to the
Amendment, and in consideration thereof, and in consideration of
any loans or
other financial accommodations heretofore or hereafter extended
by Agent to
Borrowers, whether pursuant to the Loan Agreement or otherwise,
Guarantor has
agreed to guaranty the Guarantied Obligations referred to below,
subject to the
limitations set forth herein.
NOW, THEREFORE, in consideration of the foregoing, Guarantor
and Agent hereby agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
(a) Definitions. Capitalized terms used herein and not otherwise
defined herein
shall have the meanings ascribed to them in the Loan Agreement.
The following
terms, as used in this Guaranty, shall have the following
meanings:
"Agent" has the meaning set forth in the preamble to this
Guaranty.
"Amendment" has the meaning set forth in the preamble to
this
Guaranty.
"Borrowers" has the meaning set forth in the preamble to
this
Guaranty.
"Guarantied Obligations" means the following obligations of
any one or more Borrowers to Agent, the Lenders, the Issuing
Lender, the
Underlying Issuer or any other member of the Lender Group, as
applicable, in
respect of Letters of Credit (whether in respect of L/Cs or
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EXECUTION VERSION
L/C Undertakings) or any L/C Disbursements from time to time
made pursuant to
such Letters of Credit: (i) to pay or reimburse L/C
Disbursements for the
benefit of the Issuing Lender, the Underlying Issuer or the
other Lenders, as
applicable, and (ii) to pay all interest from time to time
accrued, due and
payable by any one or more Borrowers in respect of amounts
subject to
reimbursement by Borrowers in respect of a Letter of Credit or
an L/C
Disbursement.
"Guarantor" has the meaning set forth in the preamble to
this
Guaranty.
"Guarantor's Deposit" means, as of any date of
determination,
that portion of a $600,000.00 cash deposit (together with
undisbursed interest
from time to time accrued in respect thereof) made by Guarantor
with Agent in
connection with Guarantor's delivery of this Guaranty that is
held by the Agent
as security for the Borrowers' performance of the Guaranteed
Obligations, in an
identifiable general ledger account owned by the Agent and as to
which the
balance thereof shall be documented as payable to the Guarantor
upon the
termination of this Guaranty, subject to the terms hereof.
"Guaranty" has the meaning set forth in the preamble to this
Guaranty.
"Guaranty Limit" has the meaning set forth in Section 2 of
this Guaranty.
"Lenders" has the meaning set forth in the preamble to this
Guaranty.
"Loan Agreement" has the meaning set forth in the recitals
to
this Guaranty.
"Voidable Transfer" has the meaning set forth in Section 9
of
this Guaranty.
(b) Construction. Unless the context of this Guaranty clearly
requires
otherwise, references to the plural include the singular,
references to the
singular include the plural, the terms "includes" and
"including" are not
limiting, and the term "or" has, except where otherwise
indicated, the inclusive
meaning represented by the phrase "and/or." The words "hereof,"
"herein,"
"hereby," "hereunder," and similar terms in this Guaranty refer
to this Guaranty
as a whole and not to any particular provision of this Guaranty.
Section,
subsection, clause, schedule, and exhibit references herein are
to this Guaranty
unless otherwise specified. Any reference in this Guaranty to
any agreement,
instrument, or document shall include all alterations,
amendments, changes,
extensions, modifications, renewals, replacements,
substitutions, joinders, and
supplements, thereto and thereof, as applicable (subject to any
restrictions on
such alterations, amendments, changes, extensions,
modifications, renewals,
replacements, substitutions, joinders, and supplements set forth
herein).
Neither this Guaranty nor any uncertainty or ambiguity herein
shall be construed
against Agent or Guarantor, whether under any rule of
construction or otherwise.
On the contrary, this Guaranty has been reviewed by all parties
and shall be
construed and interpreted according to the ordinary meaning of
the words used so
as to accomplish fairly the purposes and intentions of all
parties hereto. Any
reference herein to any Person shall be construed to include
such Person's
successors and assigns. Any requirement of a writing contained
herein shall be
satisfied by the transmission of a Record and any Record
transmitted shall
constitute a representation and warranty as to the accuracy and
completeness of
the information contained therein.
2. GUARANTIED OBLIGATIONS; LIMITATION OF RECOURSE; TERMINATION
OF
GUARANTY.
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EXECUTION VERSION
(a) Subject to the terms and limitations specified in this
Guaranty,
Guarantor hereby irrevocably and unconditionally guaranties to
Agent, as and for
its own debt, until final payment in full thereof has been made,
the prompt
payment in full of the Guarantied Obligations, when and as the
same shall become
due and payable with the intent that the guaranty set forth
herein shall be a
guaranty of payment and not a guaranty of collection. The
guaranty herein
provided shall be one of primary obligor and there shall be no
requirement that
Agent look to Borrowers or any other Person for payment or
performance of the
Guaranteed Obligations prior to the assertion of liability of
Guarantor
hereunder.
(b) Notwithstanding Section 2(a) of this Guaranty, the total
liability
of Guarantor shall not exceed, and shall be limited to, the
amount of
Guarantor's Deposit from time to time maintained by or for the
benefit of Agent
(the "Guaranty Limit"). To the extent the Guaranty Limit is not
sufficient to
fully discharge and satisfy the Guaranteed Obligations, the
Guarantor will not
be personally liable for any such deficiency. Agent's recourse
under this
Guaranty shall be limited solely to its rights as a creditor
secured by liens in
the Guarantor's Deposit and the related rights of setoff, and in
each case with
recourse solely to the amount of Guarantor's Deposit maintained
by Agent from
time to time, as and to the extent provided in this Guaranty.
Guarantor
acknowledges and agrees that Guarantor's Deposit shall be
subject to setoff in
respect all or any portion of the Guaranteed Obligations from
time to time due
any payable without prior notice to Guarantor or any
Borrower.
(c) If, at any time (i)(A) there shall be no Guaranteed
Obligations due
and payable by Borrowers or Guarantor pursuant to the Loan
Agreement or this
Guaranty, as applicable, and no actual or potential claims shall
have been
asserted pursuant to this Guaranty, (B) the Letter of Credit
Usage shall be
zero, and (C) no applications for the issuance of Letters of
Credit shall have
been presented to Agent or Issuing Lender, or (ii) all amounts
of the
Guarantor's Deposit maintained by Agent shall have been set off
against
Guaranteed Obligations pursuant to the terms of this Guaranty,
Guarantor may
terminate this Guaranty by written notice to Agent. Agent shall
notify Guarantor
in writing within 30 days of the satisfaction of all of the
conditions specified
in either of clauses (i) or (ii) of the preceding sentence. Upon
Guarantor's
delivery of written notice of termination to Agent, this
Guaranty shall
terminate automatically and without requirement of further
action by Guarantor,
Agent or any other Person, and Agent shall mark this Guaranty
cancelled and
return the same to Guarantor together with the balance of the
Guarantor's
Deposit (including accrued and undisbursed interest in respect
thereof).
3. CONTINUING GUARANTY. This Guaranty includes Guarantied
Obligations arising under successive transactions continuing,
compromising,
extending, increasing, modifying, releasing, or renewing the
Guarantied
Obligations, changing the interest rate, payment terms, or other
terms and
conditions thereof. To the maximum extent permitted by law,
Guarantor hereby
waives any right to revoke this Guaranty as to future Guarantied
Obligations,
except as expressly set forth at Section 2(c) of this Guaranty.
If such a
revocation is effective notwithstanding the foregoing waiver,
Guarantor
acknowledges and agrees that (a) no such revocation shall be
effective until
written notice thereof has been received by Agent, (b) no such
revocation shall
apply to any Guarantied Obligations in existence on such date
(including any
subsequent continuation, extension, or renewal thereof, or
change in the
interest rate, payment terms, or other terms and conditions
thereof), (c) no
such revocation shall apply to any Guarantied Obligations made
or created after
such date to the extent made or created pursuant to a
legally
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EXECUTION VERSION
binding commitment of Agent in existence on the date of such
revocation, (d) no
payment by Guarantor, Borrowers, or from any other source, prior
to the date of
such revocation shall reduce the maximum obligation of Guarantor
hereunder, and
(e) any payment by Borrowers or from any source other than
Guarantor subsequent
to the date of such revocation shall first be applied to that
portion of the
Guarantied Obligations as to which the revocation is effective
and which are
not, therefore, guarantied hereunder, and to the extent so
applied shall not
reduce the maximum obligation of Guarantor hereunder.
4. SECURITY FOR GUARANTY.
(a) As of the date of this Guaranty, the undersigned Guarantor
has
delivered to Agent, as collateral for the obligations of
Guarantor under this
Guaranty, cash in the amount of $600,000.
(b) Guarantor hereby pledges, transfers and assigns to Agent, on
behalf
of itself and the other members of the Lender Group, and grants
to Agent as
security for obligations of Guarantor under this Guaranty to pay
and perform the
Guaranteed Obligations, a continuing security interest in and to
the Guarantor's
Deposit (which shall not include the amount of any disbursed
interest in respect
thereof) and all of Guarantor's right, title and interest
therein. This pledge,
assignment and grant of security interest shall secure payment
of the Guaranteed
Obligations. Guarantor represents and warrants that Agent's
security interest in
the Guarantor's Deposit is a valid, first priority, perfected
security interest
in the Guarantor's Deposit. Guarantor represents that none of
the Guarantor's
Deposit was obtained from Borrowers and that no Borrower has any
right in or to
the Guarantor's Deposit, which is maintained solely as security
for the
obligations of Guarantor hereunder. Agent is hereby authorized
to setoff the
Guarantor's Deposit in full or partial satisfaction of the
Guaranteed Obligation
as and when the same shall be due and payable.
(c) Agent may co-mingle the Guarantor's Deposit with other funds
of
Agent or deliver such funds to one or more of Agent's affiliates
for investment
upon such terms as Agent shall determine at its election. Agent
shall disburse
to Guarantor such interest as may accrue in respect of the
Guarantor's Deposit
not less frequently than monthly, together with a reasonably
detailed
calculation thereof. Such disbursements shall only be required
after all
obligations of Guarantor hereunder that are then due and payable
have been
satisfied pursuant to the terms of this Guaranty. Upon request
of Guarantor from
time to time, Agent shall provide a statement of the amount of
the Guarantor's
Deposit maintained by Agent and not applied in satisfaction of
claims hereunder.
5. PRIMARY OBLIGATIONS. This Guaranty is a primary and
original
obligation of Guarantor, is not merely the creation of a surety
relationship,
and is, subject to the Guaranty Limit, an absolute,
unconditional, and
continuing guaranty of payment and performance which shall
remain in full force
and effect without respect to future changes in conditions until
or unless this
Guaranty has been terminated purs
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