-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KLXBozlG6koh06m58T8LectbZroNZk1j02z7W2MHBz6nKeYWPOt6vTnkj3u6lx4y 8OxCY6rcAKAGAuIMb/tpmA== 0001104659-11-009307.txt : 20110223 0001104659-11-009307.hdr.sgml : 20110223 20110223154434 ACCESSION NUMBER: 0001104659-11-009307 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20110216 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20110223 DATE AS OF CHANGE: 20110223 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHEROKEE INC CENTRAL INDEX KEY: 0000844161 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 954182437 STATE OF INCORPORATION: DE FISCAL YEAR END: 0203 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-18640 FILM NUMBER: 11632117 BUSINESS ADDRESS: STREET 1: 6835 VALJEAN AVE CITY: VAN NUYS STATE: CA ZIP: 91406-4713 BUSINESS PHONE: 8189511002 MAIL ADDRESS: STREET 1: 6835 VALJEAN AVE CITY: VAN NUYS STATE: CA ZIP: 91406-4713 FORMER COMPANY: FORMER CONFORMED NAME: GREEN ACQUISITION CO DATE OF NAME CHANGE: 19900814 8-K 1 a11-6535_18k.htm 8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 16, 2011

CHEROKEE INC.

(Exact name of registrant as specified in its charter)

Delaware		1-18640		95-4182437
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(I.R.S. Employer Identification Number)

6835 Valjean

Van Nuys, California 91406

(Address of Principal Executive Offices) (Zip Code)

(818) 908-9868

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

Pursuant to the debt commitment letter previously disclosed on Cherokee Inc.’s (“Cherokee”) Current Report on Form 8-K, dated as of January 28, 2011 and filed with the Securities and Exchange Commission (the “Commission”) on January 31, 2011, on February 16, 2011 (the “Effective Date”), Cherokee and U.S. Bank National Association (the “Bank”) entered into a Term Loan Agreement (the “Loan Agreement”). Pursuant to the Loan Agreement, on the Effective Date, Cherokee borrowed $10,000,000 in principal from the Bank (the “Loan”). The Loan is evidenced by a term note in the principal amount of $10,000,000, a security agreement, a California judicial reference agreement and a continuing guaranty executed by Cherokee’s wholly owned subsidiary, Spell C. LLC (collectively, with the Loan Agreement, the “Loan Documents”).

The Loan Documents provide for the repayment of the Loan in equal monthly installments of $277,778 plus interest over the next three years following the Effective Date, with the balance due at maturity, and with interest on the Loan calculated at a floating rate equal to either (i) the Bank’s prime rate minus 0.25% or (ii) 2.75% plus the 1, 2 or 3 month LIBOR rate, as selected by Cherokee. The Loan Agreement contains various affirmative and negative covenants that are customary for loan agreements and transactions of this type, including limitations on our ability to incur debt or other liabilities and limitations on our ability to consummate acquisitions in any fiscal year in excess of $3,000,000 or in excess of $6,000,000 in the aggregate while the Loan is outstanding. The Loan Agreement also imposes the following financial covenants, as specifically defined therein, including: (i) a minimum fixed charge coverage ratio of at least 1.25 to 1.00 to be calculated quarterly on a trailing twelve month basis and (ii) a minimum tangible net worth of at least $1,200,000 for Cherokee’s quarterly period ending April 30, 2011, measured quarterly, and increasing each quarterly period thereafter by 25% of Cherokee’s quarterly net profit. Further, as collateral for the Loan, we granted a security interest in favor of the Bank in all of Cherokee’s assets, and the Loan is guaranteed by Cherokee’s wholly owned subsidiary, Spell C. LLC. In the event of a default under the Loan Agreement, the Bank has the right to terminate its obligations under the Loan Agreement, accelerate the payment on any unpaid balance of the Loan and exercise its other rights under the Loan Documents, including foreclosing on our assets under the security agreement.

The proceeds from the Loan were primary used to satisfy our payment obligations to our former Executive Chairman, Robert Margolis, pursuant to the Separation Agreement, dated as of January 28, 2011, between Cherokee and Mr. Margolis (the “Separation Agreement”). In furtherance of the foregoing, on February 17, 2011, (i) we repaid in full all outstanding promissory notes previously issued to affiliates of Mr. Margolis (the “Margolis Notes”) for an aggregate payment amount of $7,265,967 and (ii) we paid Mr. Margolis a one time severance payment equal to $2,260,000.

The foregoing summary description of the Loan Documents and the transactions contemplated thereby does not purport to be complete and is subject to and qualified in its entirety by reference to the terms and conditions of the Loan Documents, copies of which are attached hereto as Exhibits 10.1 — 10.5 and are incorporated herein by reference. Descriptions of the Separation Agreement and the Margolis Notes and the transactions contemplated thereby were previously reported in Cherokee’s Current Report on Form 8-K, dated January 28, 2011 and filed with the Commission on January 31, 2011 and in Cherokee’s Current Report on Form 8-K, dated February 7, 2011 and filed with the Commission on February 11, 2011, and are incorporated herein by reference.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

Reference is made to the disclosure set forth under Item 1.01 above.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.		Description
10.1		Term Loan Agreement, by and between Cherokee Inc. and U.S. Bank National Association, dated as of February 16, 2011*
10.2		Term Note, by and between Cherokee Inc. and U.S. Bank National Association, dated as of February 16, 2011*
10.3		Security Agreement, by and between Cherokee Inc. and U.S. Bank National Association, dated as of February 16, 2011*
10.4		Continuing Guaranty, executed by Spell C. LLC in favor of U.S. Bank National Association, dated as of February 16, 2011*
10.5		California Judicial Reference Agreement, by and between Cherokee Inc. and U.S. Bank National Association, dated as of February 16, 2011*

*Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	CHEROKEE INC.


Dated: February 22, 2011		By:	/s/Mark DiSiena
			Mark DiSiena
			Chief Financial Officer

EX-10.1 2 a11-6535_1ex10d1.htm EX-10.1

Exhibit 10.1

TERM LOAN AGREEMENT

THIS TERM LOAN AGREEMENT, dated as of February 16, 2011, is entered into between U.S. BANK NATIONAL ASSOCIATION, a national banking association (“Bank”), and CHEROKEE INC., a Delaware corporation (“Borrower”), in light of the following facts:

WHEREAS, Borrower has requested that Bank make a term loan to it in the amount of Ten Million Dollars ($10,000,000.00).

WHEREAS, Borrower has agreed to secure its Obligations hereunder with a lien on substantially all of its personal property assets as set forth in Security Agreement (as defined below).

WHEREAS, to induce Bank to make the term loan to Borrower, Spell C, LLC, a Delaware limited liability company (“Guarantor”) has agreed to guaranty the repayment of the term loan as set forth in the Guaranty (as defined below).

WHEREAS, in order to set forth the terms under which Bank will make the term loan to Borrower, Bank and Borrower have agreed to enter into this Agreement.

The parties agree as follows:

1. DEFINITIONS. In addition to the defined terms contained in the first paragraph and recitals above, as used herein, the following terms shall have the following definitions:

1.1 “Affiliate” or “Affiliates” means any Person controlled by, controlling or under common control with Borrower, including any subsidiary of Borrower. For purposes of this definition, “control,” when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

1.2 “Agreement” means this Term Loan Agreement and any amendments or modifications hereof.

1.3 “Bank Expenses” means all of the following reasonable and documented expenses: (i) costs or expenses (including, without limitation, taxes and insurance premiums) required to be paid by Borrower under this Agreement or any of the other Term Loan Documents which are paid or advanced by Bank; (ii) filing, recording, publication and search fees paid or incurred by Bank; and (iii) costs, fees (including attorneys’ and paralegals’ fees) and expenses incurred by or charged to Bank: (a) in structuring, drafting, reviewing, amending, defending or concerning this Agreement or any of the other Term Loan Documents; or (b) to correct any default or enforce any provision of this Agreement, or any of the other Term Loan Documents.

1.4 “Change of Control” means

A. Any Person or “group” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) who does not have an ownership interest in Borrower on the date hereof is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that any such Person, entity or group will be deemed to have “beneficial ownership” of all securities that such Person, entity or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than fifty percent (50%) of the voting power of all classes of ownership of Borrower;

B. During any consecutive two-year period, individuals who at the beginning of such period constituted the board of directors of Borrower (together with any new directors whose election to such board of directors, or whose nomination for election by the owners of Borrower, was approved by a vote of two thirds of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the board of directors of Borrower then in office.

1.5 “Closing Date” means the date Bank makes the Term Loan to Borrower.

1.6 “Collateral” has the meaning given in the Security Agreement.

1.7 “EBITDAR” means earnings before interest, taxes, depreciation, amortization and rent/lease expense.

1.8 “Environmental Law” means any federal, state, local or other governmental statute, regulation, law or ordinance dealing with the protection of human health and the environment.

1.9 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

1.10 “ERISA Affiliate” means any trade or business (whether or not incorporated) that is a member of a group which includes Borrower and which is treated as a single employer under Section 414 of the IRC.

1.11 “Event of Default” means the occurrence of any one of the events set forth in Section 10.

1.12 “Fixed Charge Coverage Ratio” for any period of measurement, means the ratio of (a) EBITDAR, minus maintenance capital expenditures (measured at 50% of depreciation expense), minus cash taxes, minus cash dividends, to (b) scheduled amortization of long term debt, plus cash interest expense, plus rent/lease expense. For the quarters ending April 30, 2011, July 31, 2011 and October 31, 2011, (i) the scheduled amortization will be equal to $3,333,333 and (ii) cash interest will be annualized on a year-to-date basis.

1.13 “GAAP” means generally accepted accounting principles, applied on a basis consistent with the accounting practices applied in the financial statements described in Section 8.6.

1.14 “Guaranty” means that certain guaranty executed by Guarantor in favor of Bank.

1.15 “Hazardous Substances” means pollutants, contaminants, hazardous substances, hazardous wastes, petroleum and fractions thereof, and all other chemicals, wastes, substances and materials listed in, regulated by or identified in any Environmental Law.

1.16 “Insolvency Proceeding” means any proceeding commenced by or against any person or entity under any provision of the federal Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including, but not limited to, assignments for the benefit of creditors, formal or informal moratoriums, compositions or extensions generally with its creditors.

1.17 “IRC” means the Internal Revenue Code, as amended from time to time.

1.18 “Judicial Officer or Assignee” means any trustee, receiver, custodian, assignee for the benefit of creditors or any other person or entity having powers or duties like or similar to the powers and duties of a trustee, receiver, custodian or assignee for the benefit of creditors.

1.19 “LIBOR Rate Loan” shall have the meaning set forth in Section 2.2(A).

1.20 “Loan Period” means the period commencing on the advance date of the applicable LIBOR Rate Loan and ending on the numerically corresponding day 1, 2 or 3 months thereafter matching the interest rate term selected by Borrower; provided, however, (a) if any Loan Period would otherwise end on a day which is not a New York Banking Day, then the Loan Period shall end on the next succeeding New York Banking Day unless the next succeeding New York Banking Day falls in another calendar month, in which case the Loan Period shall end on the immediately preceding New York Banking Day; or (b) if any Loan Period begins on the last New York Banking Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of the Loan Period), then the Loan Period shall end on the last New York Banking Day of the calendar month at the end of such Loan Period.

1.21 “Material Adverse Change” means (a) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Borrower, (b) a material impairment of Borrower’s ability to perform its obligations under the Term Loan Documents to which it is a party or of Bank’s ability to enforce the Obligations or realize upon the Collateral, or (c) a material impairment of the enforceability or priority of Bank’s liens with respect to material Collateral as a result of an action or failure to act on the part of a Borrower.

1.22 “Money Markets” means one or more wholesale funding markets available to and selected by Bank, including negotiable certificates of deposit, commercial paper, Eurodollar deposits, bank notes, federal funds, interest rate swaps or others.

1.23 “Multiemployer Plan” means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which Borrower or any ERISA Affiliate contributes or is obligated to contribute.

1.24 “New York Banking Day” means any day (other than a Saturday or Sunday) on which commercial banks are open for business in New York, New York.

1.25 “Obligations” means all obligations, guaranties, covenants and duties owing by Borrower to Bank of any kind and description whether arising pursuant to or evidenced by this Agreement or any of the other Term Loan Documents, or otherwise, including, without limitation, all interest not paid when due and all Bank Expenses which Borrower is required to pay or reimburse by this Agreement, by law, or otherwise.

1.26 “Multiemployer Plan” means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which Borrower or any ERISA Affiliate contributes or is obligated to contribute.

1.27 “Pension Plan” means a pension plan (as defined in Section 3(2) of ERISA) maintained for employees of Borrower or any ERISA Affiliate and covered by Title IV of ERISA.

1.28 “Permitted Liens” means (i) Liens for Taxes not yet due and payable or which are being contested in good faith by appropriate proceedings diligently pursued, provided that provision for the payment of all such Taxes has been made on the books of Borrower to the extent required by GAAP and Borrower’s failure to obtain a satisfactory result in such contest could not result in a Material Adverse Change; (ii) mechanics’, processor’s, materialmen’s, carriers’, warehouse-men’s, repairmen’s, landlord’s and similar Liens arising by operation of Law or arising in the ordinary course of business and securing obligations of Borrower that are not overdue for a period of more than 60 days or are being contested in good faith by appropriate proceedings diligently pursued, provided that provision for the payment of such Liens has been made on the books of Borrower and Borrower’s failure to obtain a satisfactory result in such contest could not result in a Material Adverse Change; (iii) Liens arising in connection with worker’s compensation, unemployment insurance, old age pensions and social security benefits, provided that provision for the payment of such Liens has been made on the books of Borrower and the full payment of amounts secured by such Lien could not result in a Material Adverse Change; and (iv) easements, rights-of-way, municipal, government, building, zoning and similar restrictions, utility agreements, covenants, reservations, restrictions, encroachments, and other similar encumbrances defects, liens or irregularities in title and similar charges or encumbrances which do not materially interfere with the conduct of Borrower’s business or materially detract from the value of the assets subject to such lien other than to a de minimus extent or otherwise render t itle to any such asset unmarketable.

1.29 “Person” means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision of a governmental entity.

1.30 “Plan” means an employee benefit plan (as defined in Section 3(3) of ERISA) maintained for employees of Borrower or any ERISA Affiliate.

1.31 “Prime Rate” shall have the meaning set forth in Section 2.2(A).

1.32 “Prime Rate Loan” shall have the meaning set forth in Section 2.2(A).

1.33 “Reportable Event” means a reportable event (as defined in Section 4043 of ERISA), other than an event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the Pension Benefit Guaranty Corporation.

1.34 “Security Agreement” means that certain security agreement executed by Borrower and Bank, dated as of even date herewith, as may be amended from time to time.

1.35 “Tangible Net Worth” means net worth less intangible assets (including patents, trademarks and debt issuance costs), and less loans to shareholders, affiliates and employees.

1.36 “Term Loan” shall have the meaning set forth in Section 2.1.

1.37 “Term Loan Documents” means collectively this Agreement, the Term Note, the Guaranty, the Security Agreement, and any other agreements entered into in connection with this Agreement.

1.38 “Term Note” means that certain Term Note, of even date herewith, in the original principal amount of Ten Million Dollars ($10,000,000.00), executed by Borrower to the order of Bank.

1.39 Other Definitional Provisions. References to “Sections”, “subsections”, and “Exhibits” shall be to Sections, subsections, and Exhibits, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. In this Agreement, words importing any gender include the other genders; the words “including,” “includes” and “include” shall be deemed to be followed by the words “without limitation”; references to agreements and other contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modi fications are not prohibited by the terms of this Agreement; references to any person includes their respective permitted successors and assigns or people succeeding to the relevant functions of such persons; and all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations.

2. TERM LOAN.

2.1 Term Loan. On the Closing Date, so long as all of the conditions precedent contained in Section 3 have been satisfied as determined by Bank, in its sole discretion, Bank shall lend to Borrower Ten Million Dollars ($10,000,000.00) (the “Term Loan”). The Term Loan shall be evidenced by and repaid in accordance with the terms of this Agreement and the Term Note.

2.2 Interest.

A. Interest on the Term Loan shall accrue at one of the following per annum rates selected by Borrower (i) upon notice to Bank, the prime rate announced by Bank from time to time (“Prime Rate”), as and when such rate changes, minus 0.25% (a “Prime Rate Loan”); or (ii) upon a minimum of two New York Banking Days prior notice, 2.75% plus the 1, 2 or 3 month LIBOR rate quoted by Bank from Reuters Screen LIBOR01 Page or any successor thereto (which shall be the LIBOR rate in effect two New York Banking Days prior to commencement of the advance), adjusted for any reserve requirement and any subsequent costs arising from a change in government regulation (a “LIBOR Rate Loan”).

B. In the event Borrower does not timely select another interest rate option at least two New York Banking Days before the end of the Loan Period for a LIBOR Rate Loan, Bank may at any time after the end of the Loan Period convert the LIBOR Rate Loan to a Prime Rate Loan, but until such conversion, the funds advanced under the LIBOR Rate Loan shall continue to accrue interest at the same rate as the interest rate in effect for such LIBOR Rate Loan prior to the end of the Loan Period.

C. No LIBOR Rate Loan may extend beyond the Maturity Date. In any event, if the Loan Period for a LIBOR Rate Loan should happen to extend beyond the Maturity Date, such loan must be prepaid at the time the Term Note matures. Bank’s internal records of applicable interest rates shall be determinative in the absence of manifest error. Each LIBOR Rate Loan shall be in a minimum principal amount of $100,000.

D. The aggregate number of LIBOR Rate Loans in effect at any one time may not exceed 3.

E. If a LIBOR Rate Loan is prepaid prior to the end of the Loan Period, as defined above, for such loan, whether voluntarily or because prepayment is required due to the Term Note maturing or due to acceleration of the Term Note upon default or otherwise, Borrower agrees to pay all of Bank’s costs, expenses and Interest Differential (as determined by Bank) incurred as a result of such prepayment. Because of the short-term nature of this facility, Borrower agrees that the Interest Differential shall not be discounted to its present value. Any prepayment of a LIBOR Rate Loan shall be in an amount equal to the remaining entire principal balance of such loan.

2.3 Default Rate. Upon the occurrence and during the continuation of an Event of Default, the unpaid principal balance of the Term Loan shall bear interest at a per annum rate equal to 2 percentage points above the per annum rate otherwise applicable hereunder.

2.4 Payments.

A. Interest is payable beginning March 15, 2011, and on the same date of each consecutive month thereafter (except that if a given month does not have such a date, the last day of such month), plus a final interest payment with the final payment of principal.

B. Principal is payable in installments of $277,778 each, beginning March 15, 2011, and on the same date of each consecutive month thereafter (except that if a given month does not have such a date, the last day of such month), plus a final payment equal to all unpaid principal on February 16, 2014 (the “Maturity Date”).

C. Subject to the limitation set forth in Section 2.2(E), the outstanding amount of the Term Note may be prepaid at any time. Any payments or prepayments received by Bank may be applied to amounts due under the Term Loan Documents in such order as Bank may elect.

D. Borrower hereby authorizes Bank to automatically withdraw all amounts due hereunder directly from Borrower’s account with U.S. Bank, account number (“Borrower’s Account”). Borrower hereby further authorizes Bank, from time to time without prior notice to Borrower, to charge such interest and fees, all Bank Expenses (as and when incurred), and all other payments as and when due and payable under any Term Loan Document (including the installments when due and payable with respect to the Term Loan) to Borrower’s Account, which amounts thereafter shall accrue interest at the rate then applicable to the Term Loan hereunder. Any interest not paid when due shall be compounded b y being charged to Borrowers’ Account and shall thereafter accrue interest at the rate then applicable to Prime Rate Loans hereunder.

2.5 Computation. All interest and fees shall be computed on the basis of a 360 day year for the actual number of days elapsed. In the event the Prime Rate is changed from time to time hereafter, the rates of interest hereunder based upon the Prime Rate automatically and immediately shall be increased or decreased by an amount equal to such change in the Prime Rate.

2.6 Intent to Limit Charges to Maximum Lawful Rate. In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. Borrower, in executing and delivering this Agreement, intends legally to agree upon the rate or rates of interest and manner of payment stated within it; provided, however, that, anything contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto, as of the date of this Agreement, Borrower is and shall be liable only for the payment of such maximum as allowed by law, and paymen t received from Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Term Loan to the extent of such excess.

3. CONDITIONS PRECEDENT AND SUBSEQUENT. The Term Loan shall be subject to the following conditions precedent and subsequent:

3.1 The following are the conditions precedent to the making of the Term Loan:

A. Borrower shall pay Bank a closing fee in the amount of Fifty Thousand and No/100 Dollars ($50,000.00).

B. No Event of Default shall have occurred and be continuing and all of the representations and warranties set forth herein are true and correct as of the date of the making of the Term Loan.

C. Borrower shall deliver to Bank (i) certified extracts from the minutes of the meetings of Borrower’s Board of Directors authorizing the borrowings and the granting of the security interest provided for herein and authorizing specific officers to execute and deliver the agreements provided for herein and (ii) a copy of the Borrower’s operating agreement in effect on the date hereof.

D. Borrower shall deliver to Bank evidence that the Guarantor has authorized the execution of the Guaranty.

E. Guarantor shall have executed and delivered to Bank the Guaranty, in a form acceptable to Bank in its sole discretion.

F. Borrower shall have delivered to Bank the Term Loan Documents.

G. Borrower shall have delivered to Bank evidence satisfactory to Bank that Borrower has obtained insurance policies or binders, with such insurers and in such amounts as may be acceptable to Bank, respecting the Collateral.

H. Borrower shall pay Bank all of Bank’s costs, fees (including attorneys’ and paralegals’ fees) and expenses incurred by or charged to Bank in structuring, drafting, or concerning this Agreement or any of the other Term Loan Documents.

I. Bank shall have a first priority security interest in the Collateral, subject to no other liens except Permitted Liens.

J. Deliver or cause to be delivered to Bank such other executed documents as Bank may reasonably require.

4. PAYMENT OF EXPENSES. Any and all costs, fees and expenses incurred by Bank in connection with Borrower satisfying the terms and conditions set forth in this Agreement (including outside attorneys’ and paralegals’ fees) shall be paid by Borrower to Bank. In this regard, Borrower hereby authorizes Bank to charge Borrower’s account for the full amount of such costs, fees and expenses.

5. AUTHORIZATIONS. Bank is hereby authorized to make the Term Loan based upon telephonic or other instructions and transaction reports received from Borrower Although Bank shall make a reasonable effort to determine the person’s identity, Bank shall not be responsible for determining the exact identity of the person calling and Bank may act on the instructions of anyone it perceives to be one of the authorized personnel of Bank.

6. TERM. This Agreement shall terminate once all Obligations evidenced by the Term Note have been fully and indefeasibly paid to Bank. The Obligations evidenced by the Term Note, including all accrued and unpaid principal and interest, shall be due and payable on the earlier of the acceleration of the Term Loan upon an Event of Default or otherwise in accordance with the terms of this Agreement, or on the Maturity Date.

7. POWER OF ATTORNEY. Borrower hereby irrevocably makes, constitutes and appoints Bank (and any of Bank’s officers, employees or agents designated by Bank) as Borrower’s true and lawful attorney with power:

A. Upon Borrower’s failure or refusal to comply with its undertakings contained in this Agreement, to sign the name of Borrower on any documents which need to be executed, recorded and/or filed in order to perfect or continue perfected Bank’s security interest in the Collateral or to otherwise effectuate the rights of Bank under this Agreement and the other Term Loan Documents;

B. To do all things commercially or reasonably necessary to carry out this Agreement.

The appointment of Bank as Borrower’s attorney, and each and every one of Bank’s rights and powers, being coupled with an interest, are irrevocable so long as any of the Obligations have not been fully paid and performed. Neither Bank nor its employees, officers or agents shall be liable for any acts or omissions or for any error in judgment or mistake of fact or law made in good faith except for gross negligence or willful misconduct.

8. BORROWER’S REPRESENTATIONS AND WARRANTIES. Borrower makes the following representations and warranties which shall be deemed to be continuing representations and warranties so long as any portion of the Term Loan remains unpaid.

8.1 Existence and Rights.

A. Borrower is a corporation duly organized and existing under the laws of the State of Delaware and is qualified and licensed to do business and is in good standing in any state in which the conduct of its business or its ownership of property requires that it be so qualified;

B. Borrower has the right and power to enter into this Agreement and each of the other Term Loan Documents;

8.2 Agreement Authorized. The execution, delivery and performance by Borrower of this Agreement and each of the other Term Loan Documents: (a) have been duly authorized and do not require the consent or approval of any governmental body or other

regulatory authority; and (b) shall not constitute a breach of any provision contained in Borrower’s articles of incorporation or bylaws.

8.3 Binding Agreement. This Agreement is the valid, binding and legally enforceable obligation of Borrower in accordance with its terms.

8.4 No Conflict. The execution, delivery and performance by Borrower of this Agreement and each of the other Term Loan Documents: (a) shall not constitute an event of default under any agreement, indenture or undertakings to which Borrower is a party or by which it or any of its property may be bound or affected; (b) are not in contravention of or in conflict with any law or regulation; and (c) do not cause any lien, charge or other encumbrance to be created or imposed upon any such property by reason thereof.

8.5 Subsidiaries. Except as set forth on Schedule 8.5, Borrower has no Subsidiaries.

8.6 Financial Condition; No Adverse Change. Borrower has furnished to Bank its audited financial statements for its fiscal year ended January 30, 2010, and unaudited financial statements for the fiscal-year-to-date period ended October 31, 2010, and those statements fairly present Borrower’s financial condition as of those dates and the results of Borrower’s operations and cash flows for the periods then ended and were prepared in accordance with GAAP. Since the date of the most recent financial statements, there has been no Material Adverse Change in Borrower’s business, properties or condition (financial or otherwise).

8.7 Litigation. There are no actions, suits or proceedings pending or, to Borrower’s knowledge, threatened against or affecting Borrower or any of its Affiliates or the properties of Borrower or any of its Affiliates before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to Borrower or any of its Affiliates, would have a Material Adverse Change on the financial condition, properties or operations of Borrower or any of its Affiliates.

8.8 Intellectual Property Rights.

A. Owned Intellectual Property. Set forth on Schedule 8.8 is a complete list of all patents, applications for patents, trademarks, applications to register trademarks, service marks, applications to register service marks, mask works, trade dress and copyrights for which Borrower is the owner of record (the “Owned Intellectual Property”). Except as set forth below, (A) Borrower owns the Owned Intellectual Property free and clear of all restrictions (including covenants not to sue any Person), court orders, injunctions, decrees, writs or Liens, whether by agreement memorialized in a writing by Borrower or otherwise, (B) no Person other than Borrower owns or has been granted any right in the Owned Intellectual Property, (C) all Owned Intellectual Property is valid, subsisting and enforce able, and (D) Borrower has taken all commercially reasonable action necessary to maintain and protect the Owned Intellectual Property.

B. Agreements with Employees and Contractors. Borrower has entered into a legally enforceable agreement with each Person that is an employee or

subcontractor obligating that Person to assign to Borrower, without additional compensation, any Intellectual Property Rights created, discovered or invented by that Person in the course of that Person’s employment or engagement with Borrower (except to the extent prohibited by law), and further obligating that Person to cooperate with Borrower, without additional compensation, to secure and enforce the Intellectual Property Rights on behalf of Borrower, unless the job description of the Person is such that it is not reasonably foreseeable that the employee or subcontractor will create, discover, or invent Intellectual Property Rights.

C. Intellectual Property Rights Licensed from Others. Set forth on Schedule 8.8 is a complete list of all agreements under which Borrower has licensed Intellectual Property Rights from another Person (“Licensed Intellectual Property”) other than readily available, non-negotiated licenses of computer software and other intellectual property used solely for performing accounting, word processing and similar administrative tasks (“Off-the-shelf Software”) and a summary of any ongoing payments Borrower is obligated to make with respect thereto. Except as set forth on Schedule 8.8, Borrower’s licenses to use the Licensed Intellectual Property are free and clear of all restrictions, Liens, court orders, injunctions, decrees, or writs, whether by agreed to in writing by B orrower or otherwise. Except as disclosed below, Borrower is not contractually obligated to make royalty payments of a material nature, or pay fees to any owner of, licensor of, or other claimant to, any Intellectual Property Rights.

D. Other Intellectual Property Needed for Business. Except for Off-the-shelf Software and as disclosed on Schedule 8.8, the Owned Intellectual Property and the Licensed Intellectual Property constitute all Intellectual Property Rights used or necessary to conduct Borrower’s business as it is presently conducted or as Borrower reasonably foresees conducting it.

E. Infringement. Except as disclosed on Schedule 8.8, Borrower has no knowledge of, and has not received notice either orally or in writing alleging, any Infringement of another Person’s Intellectual Property Rights (including any claim set forth in writing that Borrower must license or refrain from using the Intellectual Property Rights of any Person) nor, to Borrower’s knowledge, is there any threatened claim or any reasonable basis for any such claim.

8.9 Taxes. Borrower and its Affiliates have paid or caused to be paid to the proper authorities when due all federal, state and local taxes required to be withheld by each of them except for taxes being disputed in good faith and for which adequate reserves exist. Borrower and its Affiliates have filed all federal, state and local tax returns which to the knowledge of the officers of Borrower or any Affiliate, as the case may be, are required to be filed, and Borrower and its Affiliates have paid or caused to be paid to the respective taxing authorities all taxes as shown on these returns or on any assessment received by any of them to the extent such taxes have become due.

8.10 Titles and Liens. Borrower has good and marketable title to all Collateral free and clear of all liens other than Permitted Liens. No financing statement naming Borrower as debtor is on file in any office.

8.11 No Defaults. Borrower is in compliance with all provisions of all agreements, instruments, decrees and orders to which it is a party or by which it or its property is bound or affected, the breach or default of which could have a Material Adverse Change on Borrower’s financial condition, properties or operations .

8.12 Submissions to Bank. All financial and other information provided to Bank by or on behalf of Borrower in connection with Borrower’s request for the term loan contemplated hereby is (i) true and correct in all material respects, (ii) does not omit any material fact that would cause such information to be misleading, and (iii) as to projections, valuations or proforma financial statements, present a good faith opinion as to such projections, valuations and proforma condition and results.

8.13 Environmental Matters.

A. Hazardous Substances on Premises. Except as disclosed on Schedule 8.13, there are not present in, on or under any location of Borrower any Hazardous Substances in such form or quantity as to create any material liability or obligation for either Borrower or Bank under the common law of any jurisdiction or under any Environmental Law, and no Hazardous Substances have ever been stored, buried, spilled, leaked, discharged, emitted or released in, on or under any location of Borrower in such a way as to create a material liability.

B. Disposal of Hazardous Substances. Except as disclosed on Schedule 8.13, Borrower has not disposed of Hazardous Substances in such a manner as to create any material liability under any Environmental Law.

C. Claims and Proceedings with Respect to Environmental Law Compliance. Except as disclosed on Schedule 8.13, there have not existed in the past, nor are there any threatened or impending requests, claims, notices, investigations, demands, administrative proceedings, hearings or litigation relating in any way to any location of Borrower or Borrower, alleging material liability under, violation of, or noncompliance with any Environmental Law or any license, permit or other authorization issued pursuant thereto.

D. Compliance with Environmental Law; Permits and Authorizations. Except as disclosed on Schedule 8.13, Borrower (A) conducts its business at all times in compliance with applicable Environmental Law, (B) possesses valid licenses, permits and other authorizations required under applicable Environmental Law for the lawful and efficient operation of its business, none of which are scheduled to expire, or withdrawal, or material limitation within the next 12 months, and (C) has not been denied insurance on grounds related to potential environmental liability.

E. Status of Premises. Except as disclosed on Schedule 8.13, the locations of Borrower are not and never have been listed on the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System or any similar federal, state or local list, schedule, log, inventory or database.

F. Environmental Audits, Reports, Permits and Licenses. Borrower has delivered to Bank all environmental assessments, audits, reports, permits, licenses

and other documents describing or relating in any way to any location of Borrower or Borrower’s businesses.

8.14 Employee Benefit Plans.

A. Maintenance and Contributions to Plans. Except as disclosed on Schedule 8.14, neither Borrower nor any ERISA Affiliate (A) maintains or has maintained any Pension Plan, (B) contributes or has contributed to any Multiemployer Plan, or (C) provides or has provided post-retirement medical or insurance benefits to employees or former employees (other than benefits required under Section 601 of ERISA, Section 4980B of the IRC, or applicable state law).

B. Knowledge of Plan Noncompliance with Applicable Law. Except as disclosed on Schedule 8.14 neither Borrower nor any ERISA Affiliate has (A) knowledge that Borrower or the ERISA Affiliate is not in full compliance with the requirements of ERISA, the IRC, or applicable state law with respect to any Plan, (B) knowledge that a Reportable Event occurred or continues to exist in connection with any Pension Plan, or (C) sponsored a Plan that it intends to maintain as qualified under the IRC that is not so qualified, and no fact or circumstance exists which may have an adverse effect on such Plan’s tax-qualified status.

C. Funding Deficiencies and Other Liabilities. Neither Borrower nor any ERISA Affiliate has liability for any (A) accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the IRC) under any Plan, whether or not waived, (B) withdrawal, partial withdrawal, reorganization or other event under any Multiemployer Plan under Section 4201 or 4243 of ERISA, or (C) event or circumstance which could result in financial obligation to the Pension Benefit Guaranty Corporation, the Internal Revenue Service, the Department of Labor or any participant in connection with any Plan (other than routine claims for benefits under the Plan).

9. BORROWER’S COVENANTS. Borrower covenants and agrees that until the Obligations have been repaid in full, unless Bank shall otherwise consent in writing, Borrower shall do all of the following:

9.1 Insurance. Borrower, at its expense, shall keep and maintain the Collateral insured against loss or damage by fire, theft, explosion, sprinklers and all other hazards and risks ordinarily insured against by other owners who use such properties in similar businesses. Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. All such policies of insurance shall be in such form, with such companies, and in such amounts as may be satisfactory to Bank. All such policies of insurance shall contain an endorsement in a form satisfactory to Bank showing Bank as a loss payee or an additional insured, as applicable, thereof, and all proceeds payable thereunder shall be payable to Bank as its interest may appear and, upon receipt by Bank, shall be applied on account of the Obligations owing to Bank. To secure the payment of the Obligations, Borrower grants Bank a security interest in and to all such policies of insurance and the proceeds thereof, and Borrower shall direct all insurers under such policies of insurance to pay all proceeds thereof directly to Bank.

9.2 Submission of Information. Borrower shall promptly supply Bank with such information concerning the Collateral as Bank may reasonably request from time to time hereafter, and shall promptly notify Bank of any material adverse change in Borrower’s financial condition and of any condition or event which constitutes a breach of, or an event which constitutes an Event of Default. Borrower shall further provide Bank with:

A. Borrower’s quarterly 10Q reports filed with the SEC, within 45 days after the end of each of the Borrower’s first three fiscal quarters of each fiscal year.

B. Borrower’s annual 10K reports filed with the SEC, within 90 days after the end of each fiscal year of Borrower.

C. Compliance certificate, in form and substance satisfactory to Bank, delivered with each of the reports provided in clauses (A) and (B) above.

D. Annual projections of Borrower within 60 days prior to the beginning of each fiscal year, in form and substance satisfactory to Bank.

9.3 Reimbursement for Bank Expenses. Upon the demand of Bank, Borrower shall immediately reimburse Bank for all sums expended by Bank which constitute Bank Expenses, and Borrower hereby authorizes and approves all advances and payments by Bank for items constituting Bank Expenses and agrees that all such amounts may be debited from Borrower’s Account by Bank.

9.4 Financial Covenants.

A. Fixed Charge Coverage Ratio. Borrower shall maintain its Fixed Charge Coverage Ratio at a ratio not less than 1.25:1.00, measured quarterly on a trailing 12 month basis, as of the last day of each quarter.

B. Minimum Tangible Net Worth. Borrower shall maintain its Tangible Net Worth at an amount not less than $1,200,000 (“Base Line Amount”), for the fiscal quarter ending April 30, 2011, measured quarterly. For each fiscal quarter thereafter, Borrower shall maintain its Tangible Net Worth at an amount not less than the sum of the Base Line Amount plus 25% of the aggregate quarterly positive net profit of Borrower (with no reduction for a net loss) for each quarter ending after April 30, 2011, measured quarterly as of the last day of each quarter.

9.5 Collateral.

A. After the occurrence and during the continuation of an Event of Default, Borrower and all related parties shall pay to Bank all proceeds of the Collateral, to be applied to Borrower’s Obligations, promptly upon receipt of such proceeds.

B. Borrower shall not encumber any portion of the Collateral, other than in favor of Bank, without the prior written consent of Bank.

9.6 Books and Records; Examinations and Inspections.

A. Books and Records; Inspection. Borrower shall keep complete and accurate books and records with respect to the Collateral and Borrower’s business and financial condition and any other matters that Bank may request, in accordance with GAAP. Borrower shall permit any employee, attorney, accountant or other agent of Borrower to audit, review, make extracts from and copy any of its books and records at any time during ordinary business hours, and to discuss Borrower’s affairs with any of its directors, officers, employees, owners or agents.

B. Authorization to Borrower’s Agents to Make Disclosures to Bank. Borrower authorizes all accountants and other Persons acting as its agent to disclose and deliver to Bank’s employees, accountants, attorneys and other Persons acting as its agent, at Borrower’s expense, all financial information, books and records, work papers, management reports and other information in their possession regarding Borrower.

C. Collateral Exams and Inspections. Borrower shall permit Bank’s employees, accountants, attorneys or other Persons acting as its agent, to examine and inspect any Collateral or any other property of Borrower at any time during ordinary business hours on reasonable notice.

D. Collateral Appraisals. Bank may obtain an appraisal of the Collateral at such time as it deems necessary during the existence of an Event of Default but no more than once per calendar year so long as no Event of Default exists at the time of such appraisal.

9.7 Use of Proceeds. Borrower shall use the proceeds of the Term Loan to repurchase the shares of Borrower held by Robert Margolis and pay compensation to Robert Margolis and otherwise for ordinary working capital and other lawful purposes.

9.8 Defaults. No later than 3 business days after learning of the probable occurrence of any Event of Default, Borrower shall deliver to Bank a written notification of the Event of Default and the steps being taken by Borrower to cure the Event of Default.

9.9 Liens. Borrower shall not create, incur or suffer to exist any lien upon any of its assets, now owned or later acquired, as security for any indebtedness, except Permitted Liens.

9.10 Indebtedness. Borrower shall not incur, create, assume or permit to exist any indebtedness or liability on account of deposits or letters of credit issued on Borrower’s behalf, or advances or any indebtedness for borrowed money of any kind, whether or not evidenced by an instrument, except Indebtedness described in this Agreement.

9.11 Guaranties. Borrower shall not assume, guarantee, endorse or otherwise become directly or contingently liable for the obligations of any Person, exceeding $100,000 in the aggregate.

9.12 Investments and Subsidiaries. Borrower shall not make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in,

any Person or Affiliate, including any partnership or joint venture, nor purchase or hold beneficially any stock or other securities or evidence of indebtedness of any Person or Affiliate if the aggregate amount of such loans, advances or investments exceeds $100,000 at any time. Notwithstanding the above, so long as no Event of Default exists or results therefrom, Borrower may make acquisitions that satisfy the following: (i) the aggregate cash and non-cash consideration paid therefore is not greater than $3,000,000 in any fiscal year and not greater than $6,000,000 in the aggregate, measured at any time, and (ii) prior to the closing of any such acquisition, Borrower has delivered to Bank the purchase agreements and documents related to such acquisition.

9.13 Bank as Primary Depository Institution. Borrower shall use Bank as its primary depository institution and shall maintain all of its bank accounts at Bank.

10. EVENTS OF DEFAULT. Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:

10.1 Failure to Pay Obligations. If Borrower fails to pay when due and payable or when declared due and payable all or any portion of the Obligations owing to Bank (whether of principal, taxes, reimbursement of Bank Expenses, or otherwise);

10.2 Failure to Perform. If Borrower or Guarantor fails or neglects to perform, keep or observe any term, provision, condition, covenant, agreement, warranty or representation contained in this Agreement, in any of the other Term Loan Documents, or in any other present or future agreement between Bank and Borrower and/or Guarantor, following the expiration of any applicable cure period, if any.

10.3 Inaccurate Information. If any representation, statement, report, or certificate made or delivered by Borrower, or any of its officers, employees or agents, or Guarantor, including those made in any Term Loan Document, to Bank is not true and correct in any material respect.

10.4 Third Party Claim; Insolvency. If any portion of Borrower’s or Guarantor’s assets are attached for amounts in excess of $250,000, seized, subjected to a writ or distress warrant, or are levied upon, or come into the possession of any Judicial Officer or Assignee, or if Borrower becomes subject to an Insolvency Proceeding, which in the case of an involuntary bankruptcy is not dismissed within 45 days after the petition date;

10.5 Impairment. If there is a material impairment of the prospect of repayment of all or any portion of the Obligations owing to Bank or a material impairment of the value or priority of Bank’s security interests in the Collateral;

10.6 Liens. If a judgment or other claim becomes a lien or encumbrance (other than a Permitted Lien) upon all or a material portion of Borrower’s or Guarantor’s assets;

10.7 Misrepresentation. If any misrepresentation exists now or hereafter in any material warranty or representation made to Bank by Borrower or any officer or

director of Borrower, or Guarantor, or if any such warranty or representation is withdrawn by Borrower or by any officer, director or member of Borrower or Guarantor;

10.8 Impairment of Guaranty. If any guarantor of Borrower’s indebtedness to Bank dies, terminates its guaranty, defaults in the payment or performance of any obligations of guarantor owing to Bank, or becomes the subject of an Insolvency Proceeding;

10.9 Material Adverse Change. If a Material Adverse Change occurs; and

10.10 Change of Control. If a Change of Control Occurs.

11. BANK’S RIGHTS AND REMEDIES.

11.1 Remedies. Upon the occurrence of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:

A. Declare all Obligations, whether arising pursuant to this Agreement, the other Term Loan Documents or otherwise, immediately due and payable.

B. Cease advancing money to or for the benefit of Borrower under any other agreement between Borrower and Bank.

C. Terminate this Agreement and/or any other Term Loan Documents as to any future liability or obligation of Bank, but without affecting Bank’s rights and security interest in the Collateral and without affecting the Obligations owing by Borrower to Bank.

D. Without notice to or demand upon Borrower or Guarantor, make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest or compromise any encumbrance, charge or lien which in the opinion of Bank appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith.

E. Bank is hereby granted a license or other right to use, without charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral and Borrower’s rights under all licenses, and all franchise agreements shall insure to Bank’s benefit.

F. Maintain, repair, prepare for sale, advertise for sale and sell (in the manner provided for herein) the Collateral.

G. Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places as is commercially reasonable in the opinion of Bank.

H. Any deficiency which exists after disposition of the Collateral as provided above will be paid immediately by Borrower. Any excess will be returned, without interest and subject to the rights of third parties, to Borrower by Bank.

11.2 Cumulative Rights. Bank’s rights and remedies under this Agreement and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under applicable laws. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any default on Borrower’s part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election or acquiescence by it.

12. TAXES AND EXPENSES REGARDING THE COLLATERAL. If Borrower fails to pay any monies (whether taxes, assessments, insurance premiums, or otherwise) due to third persons or entities, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then Bank may, to the extent that it determines that such failure by Borrower could have a material adverse change on Bank’s interests in the Collateral, in its discretion and upon ten (10) days prior notice to Borrower, (i) make payment of the same or any part thereof; and/or (ii) set up such reserves in Borrower’s account as Bank deems necessary to protect Bank from the exposure created by such failure. Any amounts paid or deposited by Bank shall constitute Bank Expenses and beco me additional Obligations owing to Bank, shall bear interest at the rate set forth herein, and shall be secured by the Collateral. Any payments made by Bank shall not constitute: (i) an agreement by Bank to make similar payments in the future, or (ii) a waiver by Bank of any Event of Default under this Agreement. Bank need not inquire as to, or contest the validity of, any such expense, tax, security interest, encumbrance or lien, and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing.

13. WAIVERS.

13.1 Application of Payments. Borrower waives the right to direct the application of any and all payments at any time or times hereafter received by Bank on account of any Obligations owed by Borrower to Bank, and Borrower agrees that Bank shall have the continuing exclusive right to apply and reapply such payments in any manner as Bank may deem advisable, notwithstanding any entry by Bank upon its books.

13.2 Demand, Protest, Default, Etc. Except as otherwise provided herein, Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of nonpayment at maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable.

14. NOTICES. Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement shall be in writing and either personally served

or sent by regular United States mail, postage prepaid, to Borrower or to Bank, as the case may be, at its address set forth below:

If to Borrower:	Cherokee, Inc.
	6835 Valjean Avenue
	Van Nuys, California 91406
	Attn:	Mark DiSiena
	Fax Number: (818) 908-9191

If to Bank:	U.S. BANK NATIONAL ASSOCIATION
	15910 Ventura Boulevard, Suite 1712
	Encino, California 91436
	Attn:	Gary Terrasi
	Fax Number: (818) 789-3041


With copy to:		BUCHALTER NEMER
		1000 Wilshire Boulevard, Suite 1500
		Los Angeles, California 90017
		Attn: Hamid Namazie, Esq.
		Fax Number: (213) 630-5844

The parties hereto may change the address at which they are to receive notices and the telecopier number at which they are to receive telecopies hereunder, by notice in writing in the foregoing manner given to the other. All notices or demands sent in accordance with this Section 14 shall be deemed received on the earlier of the date of actual receipt or five (5) days after the deposit thereof in the mail.

15. DESTRUCTION OF BORROWER’S DOCUMENTS. Any documents, schedules, invoices or other papers delivered to Bank may be destroyed or otherwise disposed of by Bank after they are delivered to or received by Bank, unless Borrower requests, in writing, the return of the said documents, schedules, invoices or other papers and makes arrangements, at Borrower’s expense, for their return.

16. CHOICE OF LAW. THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION AND ENFORCEMENT OF THE RIGHTS OF THE PARTIES HEREUNDER AND UNDER ANY OF THE OTHER TERM LOAN DOCUMENTS AND THE CREATION, PERFECTION AND ENFORCEMENT OF ANY LIENS GRANTED BY THE TERM LOAN DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA. BORROWER WAIVES ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO SUCH VENUE.

17. GENERAL PROVISIONS.

17.1 Binding Agreement. This Agreement shall be binding and deemed effective when executed by Borrower and accepted and executed by Bank.

17.2 Bank’s Right to Setoff. As additional security for the payment of the Obligations, Borrower hereby grants to Bank a security interest in, a lien on and an express contractual right to set off against all depository account balances, cash and any other property of Borrower now or hereafter in the possession of Bank and the right to refuse to allow withdrawals from any account (collectively, “Setoff”). Bank may, at any time upon the occurrence of an Event of Default, Setoff against the Obligations whether or not the Obligations are then due or have been accelerated, all without any advance or contemporaneous notice or demand of any kind to Borrower, such notice and demand being expressly waived by Borrower.

17.3 Right to Grant Participations. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however , that Borrower may not assign this Agreement or any rights hereunder without Bank’s prior written consent and any prohibited assignment shall be absolutely void. No consent to an assignment by Bank shall release Borrower from its Obligations to Bank. Bank may assign this Agreement and its rights and duties hereunder. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank’s rights and benefits hereunder so long as Borrower is not responsible for any costs, fees or expenses incurred by Bank in connection with such sale, assignment, transfer, negotiation or g rant. In connection therewith, Bank may disclose all documents and information which Bank now or hereafter may have relating to Borrower or Borrower’s business.

17.4 Section Headings. Section headings and section numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each section applies equally to this entire Agreement.

17.5 Interpretation. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Bank or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto.

17.6 Severability. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

17.7 Modification and Merger. This Agreement cannot be changed or terminated orally. All prior agreements, understandings, representations, warranties and negotiations, if any, are merged into this Agreement.

17.8 Attorneys’ Fees. In the event that it becomes necessary to employ counsel to enforce the Bank’s rights under any of the Term Loan Documents, Borrower agrees to pay reasonable attorneys’ fees and paralegals’ fees (including allocated costs for in-house legal

services provided) and all other fees and costs associated therewith, whether or not suit is brought.

17.9 JURY TRIAL. BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE TERM LOAN DOCUMENTS.

IN WITNESS WHEREOF, Borrower has executed this Agreement as of the date written above.

	CHEROKEE INC.,
	a Delaware corporation

	By	/s/Henry Stupp
	Name:	Henry Stupp
	Title:	CEO


	U.S. BANK NATIONAL ASSOCIATION


	By	/s/Gary P. Terrasi
	Name:	Gary P. Terrasi
	Title:	Vice President

SCHEDULE 8.5

Subsidiaries

SCHEDULE 8.8

Intellectual Property Rights

SCHEDULE 8.13

Environmental Matters

SCHEDULE 8.14

Employee Benefit Plans

EX-10.2 3 a11-6535_1ex10d2.htm EX-10.2

Exhibit 10.2

TERM NOTE

$10,000,000	Dated as of
	February 16, 2011

1. INDEBTEDNESS. FOR VALUE RECEIVED, the undersigned, CHEROKEE INC., a Delaware corporation (“Maker”), promises to pay to U.S. BANK NATIONAL ASSOCIATION, a national banking association (hereinafter referred to as “Bank”), or order, at 15910 Ventura Boulevard, Suite 1712, Encino, California 91436, or at such other place as may be designated in writing by the holder of this Term Note (hereinafter referred to as this “Note”), the principal sum of Ten Million and 00/100 Dollars ($10,000,000.00), together with interest accrued thereon. This Note evidences the term loan made by Bank to Maker pursuant to that certain Term Loan Agreement, of even date herewith, between Maker and Bank (as amended, supplemented, restated or replaced from time to time the 7;Term Loan Agreement”). All capitalized terms used herein shall have the same meaning set forth in the Term Loan Agreement, unless expressed otherwise herein.

2. INTEREST. The unpaid principal balance of this Note shall bear interest at the rate set forth in the Term Loan Agreement.

3. PAYMENT. Principal and interest shall be due and payable in accordance with the terms of the Term Loan Agreement.

4. OBLIGATIONS SECURED. Maker’s Obligations hereunder and under the Term Loan Agreement are secured by the Security Agreement.

5. WAIVERS. Maker, for itself, its legal representatives, successors and assigns, expressly waives presentment, protest, demand, notice of dishonor, notice of nonpayment, notice of maturity, notice of protest, presentment for the purpose of accelerating maturity, and diligence in collection, and consent that Bank may extend the time for payment or otherwise modify the terms of payment of any part or the whole of the debt evidenced hereby. To the fullest extent permitted by law, Maker waives the statute of limitations in any action brought by Bank in connection with this Note.

6. ACCELERATION. IT IS EXPRESSLY AGREED THAT IF MAKER FAILS TO PAY ANY PAYMENT OF PRINCIPAL OR INTEREST ON THE DATE WHEN DUE HEREUNDER AND SUCH FAILURE CONTINUES AFTER EXPIRATION OF ANY APPLICABLE NOTICE AND CURE PERIODS, OR UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT UNDER THE TERMS OR CONDITIONS OF THE TERM LOAN AGREEMENT, THEN THE UNPAID PRINCIPAL BALANCE OF THIS NOTE, TOGETHER WITH INTEREST ACCRUED THEREON, SHALL THEREUPON BE IMMEDIATELY DUE AND PAYABLE AT THE OPTION OF THE HOLDER HEREOF, WITHOUT PRESENTMENT, DEMAND, PROTEST OR NOTICE OF PROTEST OF ANY KIND, ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED.

7. PARTICIPATION. Bank reserves the right to sell, assign, transfer, negotiate, or grant participation interests in all or any part of, or any interest in Bank’s rights and benefits hereunder. In connection therewith, Bank may disclose all documents and information which Bank now or hereafter may have relating to Maker.

8. MODIFICATION. This Note may not be changed, modified, amended or terminated orally.

9. WAIVER OF JURY TRIAL. THE MAKER AND BANK HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL AS SET FORTH IN THE TERM LOAN AGREEMENT.

	CHEROKEE INC.


	By:	/s/Henry Stupp
	Name:	Henry Stupp
	Its:	CEO


Bank hereby accepts this Note and agrees to the provisions contained in Section 9 of this Note.

	U.S. BANK NATIONAL ASSOCIATION

	By:	/s/Gary P. Terrasi
	Name:	Gary P. Terrasi
	Its:	Vice President

EX-10.3 4 a11-6535_1ex10d3.htm EX-10.3

Exhibit 10.3

SECURITY AGREEMENT

This Security Agreement (“Agreement”), dated as of February 16, 2011, is made by and between CHEROKEE INC., a Delaware corporation (the “Debtor”), and U.S. BANK NATIONAL ASSOCIATION (the “Secured Party”).

Secured Party and Debtor have entered into that certain Term Loan Agreement (as the same may be amended, supplemented or restated from time to time, the “Loan Agreement”), pursuant to which the Secured Party may extend credit accommodations to Debtor, and

In order to secure Debtor’s obligations under the Loan Agreement, Debtor has agreed to grant Secured Party a continuing security interest in all of its personal property assets pursuant to the terms of this Agreement.

ACCORDINGLY, in consideration of the mutual covenants contained in the Loan Agreement and herein, the parties hereby agree as follows:

1. Definitions. All terms defined in the recitals hereto that are not otherwise defined herein shall have the meanings given them in the recitals and the Loan Agreement. All terms defined in the UCC and not otherwise defined herein have the meanings assigned to them in the UCC. In addition, the following terms have the meanings set forth below or in the referenced Section of this Agreement:

“Accounts” means all of Debtor’s accounts, as such term is defined in the UCC.

“Collateral” means all of Debtor’s Accounts, chattel paper, deposit accounts, documents, Equipment, General Intangibles, goods, instruments, Inventory, Investment Property, Pledged Shares, letter-of-credit rights, letters of credit, deeds of trust, mortgages or any other encumbrance on real property securing loans made by Debtor to its customers; together with (i) all substitutions and replacements for and products of any of the foregoing; (ii) in the case of all goods, all accessions; (iii) all accessories, attachments, parts, equipment and repairs now or hereafter attached or affixed to or used in connection with any goods; (iv) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such goods; (v) any money, or other assets of the Debtor that now or hereafter come into the possession, custody, or control of the Secured Party; and (vi) proceeds of any and all of the foregoing.

“Equipment” means all of Debtor’s equipment, as such term is defined in the UCC.

“Event of Default” has the meaning given in Section 6.

“General Intangibles” means all of Debtor’s general intangibles, as such term is defined in the UCC.

“Intellectual Property Rights” means all actual or prospective rights arising in connection with any intellectual property or other proprietary rights, including all rights arising in connection with copyrights, patents, service marks, trade dress, trade secrets, trademarks, trade names or mask works.

“Inventory” means all of Debtor’s inventory, as such term is defined in the UCC.

“Investment Property” means all of Debtor’s investment property, as such term is defined in the UCC.

“Lien” means any security interest, mortgage, deed of trust, pledge, lien, charge, encumbrance, title retention agreement or analogous instrument or device, including the interest of each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a person, whether now owned or hereafter acquired and whether arising by agreement or operation of law.

“Obligations” means each and every debt, liability and obligation of every type and description which Debtor may now or at any time hereafter owe to the Secured Party pursuant to the Term Loan Documents, whether such debt, liability or obligation now exists or is hereafter created or incurred and whether it is or may be direct or indirect, due or to become due, or absolute or contingent.

“Pledged Shares” means all of Debtor’s presently existing and hereafter arising equity interests in each of its Pledged Subsidiaries, including all shares, membership interests, stock, common stock, partnership interests, partnership units, stock subscription warrants, stock options, or other rights to the capital stock of any wholly owned subsidiary of Debtor and all rights represented thereby.

“Pledged Subsidiary” means any wholly owned subsidiary of Debtor.

“Security Interest” has the meaning given in Section 2.

“UCC” means Uniform Commercial Code as in effect from time to time in the State of California.

2. Security Interest. Debtor hereby grants to the Secured Party a security interest (the “Security Interest”) in its Collateral to secure payment of the Obligations.

3. Representations, Warranties and Agreements. Debtor hereby represents, warrants and agrees as follows:

(a) Title. The Debtor (i) has marketable title to each item of Collateral in existence on the date hereof, free and clear of all Liens except Permitted Liens, (ii) will have, at the time the Debtor acquires any rights in Collateral hereafter arising, marketable title to each such item of Collateral free and clear of all Liens except Permitted Liens, (iii) will keep all Collateral free and clear of all Liens except Permitted Liens, and (iv) will defend the Collateral against all claims or demands of all persons other than the Secured Party. The Debtor will not sell or otherwise dispose of the Collateral or any interest therein, outside the ordinary course of business, without the prior written consent of the Secured Party.

(b) Chief Executive Office; Identification Numbers. The Debtor’s chief executive office and principal place of business is located at the address set forth under its signature below. The Debtor’s federal employer identification number and organizational identification number are correctly set forth under its signature below.

(c) Location of Collateral. As of the date hereof, the tangible Collateral is located only in the states and at the address, as identified on Exhibit A attached hereto.

(d) Changes in Name, Constituent Documents, Location. The Debtor will not change its name, organizational documents, or jurisdiction of organization, without the prior written consent of the Secured Party, which consent shall not be unreasonably withheld. The Debtor will not change its business address, without prior written notice to the Secured Party.

(e) Fixtures. The Debtor will not permit any tangible Collateral to become part of or to be affixed to any real property without first assuring to the reasonable satisfaction of the Secured Party that the Security Interest will be prior and senior to any Lien then held or thereafter acquired by any mortgagee of such real property or the owner or purchaser of any interest therein. If any part or all of the tangible Collateral is now or will become so related to particular real estate as to be a fixture, the real estate concerned and the name of the record owner are accurately set forth in Exhibit B hereto.

(f) Rights to Payment. Each right to payment and each instrument, document, chattel paper and other agreement constituting or evidencing Collateral is (or will be when arising, issued or assigned to the Secured Party) the valid, genuine and legally enforceable obligation, subject to no defense, setoff or counterclaim (other than those arising in the ordinary course of business), of the account debtor or other obligor named therein or in the Debtor’s records pertaining thereto as being obligated to pay such obligation. The Debtor will neither agree to any material modification or amendment nor agree to any forbearance, release or cancel lation of any such obligation, and will not subordinate any such right to payment to claims of other creditors of such account debtor or other obligor.

(g) Commercial Tort Claims. Promptly upon knowledge thereof, the Debtor will deliver to the Secured Party notice of any commercial tort claims it may bring against any person, including the name and address of each defendant, a summary of the facts, an estimate of the Debtor’s damages, copies of any complaint or demand letter submitted by the Debtor, and such other information as the Secured Party may request. Upon request by the Secured Party, the Debtor will grant the Secured Party a security interest in all commercial tort claims it may have against any person.

(h) Miscellaneous Covenants. Debtor will:

(i) keep all tangible Collateral in good repair, working order and condition, normal depreciation excepted, and will, from time to time, replace any worn, broken or defective parts thereof;

(ii) promptly pay all taxes and other governmental charges levied or assessed upon or against any Collateral or upon or against the creation, perfection or continuance of the Security Interest;

(iii) at all reasonable times, permit the Secured Party or its representatives to examine or inspect any Collateral, wherever located, and to examine, inspect and copy the Debtor’s books and records pertaining to the Collateral and its business and financial condition and to send and discuss with account debtors and other obligors requests for verifications of amounts owed to the Debtor;

(iv) keep accurate and complete records pertaining to the Collateral and pertaining to the Debtor’s business and financial condition and submit to the Secured Party such periodic reports concerning the Collateral and the Debtor’s business and financial condition as the Secured Party may from time to time reasonably request;

(v) promptly notify the Secured Party of any loss of or material damage to any Collateral or of any adverse change, known to the Debtor, in the prospect of payment of any sums due on or under any instrument, chattel paper, or account constituting Collateral;

(vi) if the Secured Party at any time so requests (after the occurrence of an Event of Default), promptly deliver to the Secured Party any instrument, document or chattel paper constituting Collateral, duly endorsed or assigned by the Debtor;

(vii) at all times keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft, collision (in case of Collateral consisting of motor vehicles) and such other risks and in such amounts as the Secured Party may reasonably request, with any such policies containing a lender loss payable endorsement acceptable to the Secured Party;

(viii) from time to time execute such financing statements as the Secured Party may reasonably require in order to perfect the Security Interest and, if any Collateral consists of a motor vehicle, execute such documents as may be required to have the Security Interest properly noted on a certificate of title;

(ix) pay when due or reimburse the Secured Party on demand for all costs of collection of any of the Obligations and all other out-of-pocket expenses (including in each case all reasonable attorneys’ fees) incurred by the Secured Party in connection with the creation, perfection, satisfaction, protection, defense or enforcement of the Security Interest or the creation, continuance, protection, defense or enforcement of this Agreement or any or all of the Obligations, including expenses incurred in any litigation or bankruptcy or insolvency proceedings;

(x) execute, deliver or endorse any and all instruments, documents, assignments, security agreements and other agreements and writings which the Secured Party may at any time reasonably request in order to secure, protect, perfect or enforce the Security Interest and the Secured Party’s rights under this Agreement; and

(xi) not use or keep any Collateral, or permit it to be used or kept, for any unlawful purpose or in violation of any federal, state or local law, statute or ordinance.

(i) Secured Party’s Right to Take Action. The Debtor authorizes the Secured Party to file from time to time where permitted by law, such financing statements against collateral described as “all personal property” or describing specific items of collateral including commercial tort claims as the Secured Party deems necessary or useful to perfect the Security Interest. The Debtor will not amend any financing statements in favor of the Secured Party except as permitted by law. Further, if the Debtor at any time fails to perform or observe any agreement contained in Section 3(h), and if such failure continues for a p eriod of ten (10) days after the Secured Party gives the Debtor written notice thereof (or, in the case of the agreements

contained in clauses (vii) and (viii) of Section 3(h), immediately upon the occurrence of such failure, without notice or lapse of time), the Secured Party may (but need not) perform or observe such agreement on behalf and in the name, place and stead of the Debtor (or, at the Secured Party’s option, in the Secured Party’s own name) and may (but need not) take any and all other actions which the Secured Party may reasonably deem necessary to cure or correct such failure (including, without limitation the payment of taxes, the satisfaction of security interests, liens, or encumbrances, the performance of obligations under contracts or agreements with account debtors or other obligors, the procurement and maintenance of insurance, the execution of financing statements, the endorsement of instruments, and the procurement of repairs or transportation); and, except to the extent that the effect of such payment would be to render any loan or forbearance of money usurious or otherwise illegal under any applicable law, the Debtor shall thereupon pay the Secured Party on demand the amount of all moneys expended and all costs and expenses (including reasonable attorneys’ fees) incurred by the Secured Party in connection with or as a result of the Secured Party’s performing or observing such agreements or taking such actions, together with interest thereon from the date expended or incurred by the Secured Party at the highest rate then applicable to any of the Obligations. To facilitate the performance or observance by the Secured Party of such agreements of the Debtor, the Debtor hereby irrevocably appoints (which appointment is coupled with an interest) the Secured Party, or its delegate, as the attorney-in-fact of the Debtor with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of the Debtor, any and all instruments, documents, financing statements, applications for insurance and other agreements and writings required to be obtained, executed, delivered or endorsed by the Debtor under this Section 3 and Section 4.

4. Rights of Secured Party. At any time and from time to time, after the occurrence and during the continuation of an Event of Default, the Secured Party may take any or all of the following actions:

(a) Account Verification. The Secured Party may at any time and from time to time send or require the Debtor to send requests for verification of accounts or notices of assignment to account debtors and other obligors. The Secured Party may also at any time and from time to time telephone account debtors and other obligors to verify accounts.

(b) Collateral Account. The Secured Party may establish a collateral account for the deposit of checks, drafts and cash payments made by the Debtor’s account debtors. If a collateral account is so established, the Debtor shall promptly deliver to the Secured Party, for deposit into said collateral account, all payments on Accounts and chattel paper received by it. All such payments shall be delivered to the Secured Party in the form received (except for the Debtor’s endorsement where necessary). Until so deposited, all payments on Accounts and chattel paper received by the Debtor shall be held in trust by the Debtor for and as the prope rty of the Secured Party and shall not be commingled with any funds or property of the Debtor. All deposits in said collateral account shall constitute proceeds of Collateral and shall not constitute payment of any Obligation. Unless otherwise agreed in writing, the Debtor shall have no right to withdraw amounts on deposit in any collateral account.

(c) Lockbox. The Secured Party may, by notice to the Debtor, require the Debtor to direct each of its account debtors to make payment directly to a special lockbox to be under the control of the Secured Party. The Debtor hereby authorizes and directs the Secured

Party to deposit all checks, drafts and cash payments received in said lockbox into the collateral account established as set forth above.

(d) Direct Collection. The Secured Party may notify any account debtor, or any other person obligated to pay any amount due, that such chattel paper, Account, or other right to payment has been assigned or transferred to the Secured Party for security and shall be paid directly to the Secured Party. At any time after the Secured Party or the Debtor gives such notice to an account debtor or other obligor, the Secured Party may (but need not), in its own name or in the Debtor’s name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, any such chattel paper, Account, or other right to payment, or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral obligations) of any such account debtor or other obligor.

5. Assignment of Insurance. The Debtor hereby assigns to the Secured Party, as additional security for the payment of the Obligations, any and all moneys (including but not limited to proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of the Debtor under or with respect to, any and all policies of insurance covering the Collateral, and the Debtor hereby directs the issuer of any such policy to pay any such moneys directly to the Secured Party. After the occurrence of an Event of Default, the Secured Party may (but need not), in its own name or in the Debtor’s name, execute and deliver proofs of claim, receive all such moneys, endorse checks and other instruments representing payment of such moneys, and adjust, litigate, compromise or release any claim against the issuer of any such policy.

6. Pledged Shares.

(a) Share Adjustments. In the event that during the term of this Agreement, any reclassification, readjustment, or other change is declared or made in the capital structure of the Pledged Subsidiary, or any option is exercised, all new substituted and additional shares, options, or other securities, issued or issuable to Debtor by reason of any such change or exercise shall be delivered to and held by Secured Party under the terms of this Agreement in the same manner as the Pledged Shares originally pledged hereunder.

(b) Options. In the event that during the term of this Agreement options shall be issued or exercised in connection with the Pledged Shares, such options acquired by Debtor shall be immediately assigned by Debtor to Secured Party and all new shares or other securities so acquired by Debtor shall also be immediately assigned to Secured Party to be held under the terms of this Agreement in the same manner as the Pledged Shares originally pledged hereunder.

(c) Consent. Debtor hereby consents that, from time to time, before or after the occurrence or existence of any Event of Default, with or without notice to or assent from Secured Party, any other security at any time held by or available to Secured Party for any of the Obligations or any other security at any time held by or available to Secured Party of any other person, firm, or corporation secondarily or otherwise liable for any of the Obligations, may be exchanged, surrendered, or released and any of the Obligations may be changed, altered, renewed, extended, continued, surrendered, compromised, waived, or released, in whole or in part, as Secured Party may see fit. Debtor shall remain bound under this Agreement

notwithstanding any such exchange, surrender, release, alteration, renewal, extension, continuance, compromise, waiver, or inaction, or extension of further credit.

(d) Voting Rights. Debtor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Shares or any part thereof; provided, however, no vote shall be cast or any consent, waiver or ratification given or any action taken which would violate or be inconsistent with the terms of the Term Loan Documents.

(e) Dividends. So long as no Event of Default has occurred, Debtor shall be entitled to receive and retain any and all dividends and distributions paid in respect of the Pledged Shares.

(f) Pledged Share Certificates. All certificates or instruments representing or evidencing the Pledged Shares shall be delivered promptly to and held by Secured Party pursuant hereto and shall be in suitable form for transfer or assignment in blank, all in form and substance satisfactory to Secured Party.

7. Events of Default. Each of the following occurrences shall constitute an event of default under this Agreement (herein called “Event of Default”): (i) a default shall occur under this Agreement, or the Loan Agreement; or (ii) the Debtor or any Guarantor shall fail to pay any or all of the Obligations when due or (if payable on demand) on demand; (iii) the Debtor or any Guarantor shall fail to observe or perform any covenant or agreement herein binding on it.

8. Remedies upon Event of Default. Upon the occurrence of an Event of Default and at any time thereafter, the Secured Party may exercise any one or more of the following rights and remedies: (i) declare all unmatured Obligations to be immediately due and payable, and the same shall thereupon be immediately due and payable, without presentment or other notice or demand; (ii) exercise and enforce any or all rights and remedies available upon default to a secured party under the UCC, including but not limited to the right to take possession of any Collateral, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof, which the Debtor hereby expressly waives), and the right to sell, lease or otherwise dispose of any or all of the Collateral, and in connection therewith, the Secured Party may require the Debtor to make the Collateral available to the Secured Party at a place to be designated by the Secured Party which is reasonably convenient to both parties, and if notice to the Debtor of any intended disposition of Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in Section 9) at least ten (10) days prior to the date of intended disposition or other action; (iii) exercise or enforce any or all other rights or remedies available to the Secured Party by law or agreement against the Collateral, against the Debtor or against any other person or property. The Secured Party is hereby granted a nonexclusive, worldwide and royalty-free license to use or otherwise exploit all Intellectual Property Rights owned by or licensed to the Debtor that the Secured Party deems necessary or appropriate to the disposition of any Collateral.

9. Other Personal Property. Unless at the time the Secured Party takes possession of any tangible Collateral, or within seven (7) days thereafter, the Debtor gives written notice to the Secured Party of the existence of any goods, papers or other property of the Debtor, not affixed to or constituting a part of such Collateral, but which are located or found upon or within such Collateral, describing such property, the Secured Party shall not be responsible or liable to the

Debtor for any action taken or omitted by or on behalf of the Secured Party with respect to such property.

10. Notices. All notices and other communications hereunder shall be given in accordance with the Loan Agreement.

11. Miscellaneous. This Agreement has been duly and validly authorized by all necessary company action. This Agreement does not contemplate a sale of accounts, or chattel paper. This Agreement can be waived, modified, amended, terminated or discharged, and the Security Interest can be released, only explicitly in a writing signed by the Secured Party, and, in the case of amendment or modification, in a writing signed by the Debtor. A waiver signed by the Secured Party shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of the Secured Party’s rights or remedies. All righ ts and remedies of the Secured Party shall be cumulative and may be exercised singularly or concurrently, at the Secured Party’s option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other. The Secured Party’s duty of care with respect to Collateral in its possession (as imposed by law) shall be deemed fulfilled if the Secured Party exercises reasonable care in physically safekeeping such Collateral or, in the case of Collateral in the custody or possession of a bailee or other third person, exercises reasonable care in the selection of the bailee or other third person, and the Secured Party need not otherwise preserve, protect, insure or care for any Collateral. The Secured Party shall not be obligated to preserve any rights the Debtor may have against prior parties, to realize on the Collateral at all or in any particular manner or order, or to apply any cash proceeds of Collateral in any particular order of application. This Agreement shall be binding upon and inure to the benefit of the Debtor and the Secured Party and their respective successors and assigns and shall take effect when signed by the Debtor and delivered to the Secured Party, and the Debtor waives notice of the Secured Party’s acceptance hereof. The Secured Party may execute this Agreement if appropriate for the purpose of filing, but the failure of the Secured Party to execute this Agreement shall not affect or impair the validity or effectiveness of this Agreement. A carbon, photographic or other reproduction of this Agreement or of any financing statement signed by the Debtor shall have the same force and effect as the original for all purposes of a financing statement. This Agreement shall be governed by and construed in accordance with the substantive laws (other than conflict laws) of the State of California. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unen forceability shall not affect other provisions or applications which can be given effect and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Obligations. The parties hereto hereby (i) consent to the personal jurisdiction of the state and federal courts located in the State of California in connection with any controversy related to this Agreement; (ii) waive any argument that venue in any such forum is not convenient, (iii) agree that any litigation initiated by the Secured Party or the Debtor in connection with this Agreement or the other Loan Documents may be venued in either the state or federal courts located in the County of Los Angels, State of California; and (iv) agree that a final judgment in any such suit, 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.

THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written.

U.S. BANK NATIONAL ASSOCIATION		CHEROKEE INC.

		By	/s/Henry Stupp
		Name:	Henry Stupp
By	/s/Gary P. Terrasi	Title:	CEO
Name:	Gary P. Terrasi
Title:	Vice President	Address:
		6835 Valjean Avenue
Address:		Van Nuys, California 91406
15910 Ventura Boulevard, Suite 1712		Attention: CFO
Encino, California 91436
Attention: Gary Terrasi		Employer identification number:
Fax No.: (818) 789-3041		95-4182437
		Organizational identification number:
		2160988 (Delaware)

EXHIBIT A

LOCATION OF COLLATERAL

EXHIBIT B

REAL ESTATE/FIXTURES

EX-10.4 5 a11-6535_1ex10d4.htm EX-10.4

Exhibit 10.4

CONTINUING GUARANTY

This Continuing Guaranty (“Guaranty”), dated as of February 16, 2011, is executed and delivered by SPELL C, LLC, a Delaware limited liability company (“Guarantor”), in favor of U.S. BANK NATIONAL ASSOCIATION (“Bank”) and in light of the following:

A. Bank has or is about to provide financial accommodations to Cherokee Inc., a Delaware corporation (“Borrower”) pursuant to that certain Term Loan Agreement dated as of even date herewith executed by Borrower in favor of Bank (as amended, supplemented and restated from time to time, the “Loan Agreement”); and

B. In order to induce Bank to extend, or continue to extend, certain credit to Borrower pursuant to the Loan Agreement, Guarantor has agreed to guarantee the Guaranteed Obligations (as defined below).

NOW, THEREFORE, in consideration of the foregoing, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Guarantor hereby agrees, in favor of Bank, 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. As used in this Guaranty, “Guaranteed Obligations” shall mean and include any and all obligations, indebtedness, or liabilities of any kind or character owed by Borrower to Bank arising under the Loan Agreement and the other Term Loan Documents, including all such obligations, indebtedness, or liabilities, whether for principal, interest (including any interest which, but for the application of the provisions of the Bankruptcy Code, would have accrued on such amounts), premium, reimbursement obligations, fees, costs, expenses (including, attorneys’ fees), or indemnity obligations, whether heretofore, now, or hereafter made, incurred, or created, whether voluntarily or involuntarily made, incurred, or created, whether secured or unsecured (and if secured, regardless of the nature or extent of the security), whether absolute or contingent, liquidated or unliquidated, determined or indeterminate, whether Borrower is liable individually or jointly with others, and whether recovery is or hereafter becomes barred by any statute of limitations or otherwise becomes unenforceable for any reason whatsoever, including any act or failure to act by Bank.

(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, and the term “including” is not limiting. The words “hereof,” “herein,” “hereby,” “hereunder,” and other similar terms refer to this Guaranty as a whole and not to any particular provision of this Guaranty. Any reference herein to any of the Term Loan Documents includes any and all alterations, amendments, extensions, modifications, renewals, or supplements thereto or thereof, as applicable. Neither this Guaranty nor any uncertainty or ambigu ity herein shall be construed or resolved against Bank or Guarantor, whether under any rule of construction or otherwise. On the contrary, this Guaranty has been reviewed by Guarantor, Bank, and their

respective counsel, and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of Bank and Guarantor.

2. Guaranteed Obligations. Guarantor hereby irrevocably and unconditionally guarantees to Bank, as and for its own debt, until final and indefeasible payment thereof has been made, (a) payment of the Guaranteed Obligations, in each case when and as the same shall become due and payable, whether at maturity, pursuant to a mandatory prepayment requirement, by acceleration, or otherwise; it being the intent of Guarantor that the guaranty set forth herein shall be a guaranty of payment and not a guaranty of collection; and (b) the punctual and faithful performance, keeping, observance, and fulfillment by Borrower of all of the agreements, conditions, covenants, an d obligations of Borrower contained in the Loan Agreement and in each of the other Term Loan Documents.

3. Continuing Guaranty. This Guaranty includes Guaranteed Obligations arising under successive transactions continuing, compromising, extending, increasing, modifying, releasing, or renewing the Guaranteed Obligations, changing the interest rate, payment terms, or other terms and conditions thereof, or creating new or additional Guaranteed Obligations after prior Guaranteed Obligations have been satisfied in whole or in part. Guarantor hereby absolutely, knowingly, unconditionally, and expressly waives and agrees not to assert any right it has under Section 2815 of the California Civil Code, or otherwise, to revoke this Guaranty as to future indebtedness. 0; 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 Bank, (b) no such revocation shall apply to any Guaranteed 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 Guaranteed Obligations made or created after such date to the extent made or created pursuant to a legally binding commitment of Bank in existence on the date of such revocation, (d) no payment by Guarantor, Borrower, 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 Borrower or from any source other than Guarantor, subsequent to the date of such revocation, shall first be applied to that portio n of the Guaranteed Obligations as to which the revocation is effective and which are not, therefore, guaranteed hereunder, and to the extent so applied shall not reduce the maximum obligation of Guarantor hereunder.

4. Performance Under This Guaranty. In the event that Borrower fails to make any payment of any Guaranteed Obligations on or before the due date thereof, or if Borrower shall fail to perform, keep, observe, or fulfill any other obligation referred to in clause (b) of Section 2 hereof in the manner provided in the Term Loan Documents, as applicable, Guarantor immediately shall cause such payment to be made or each of such obligations to be performed, kept, observed, or fulfilled.

5. Primary Obligations. This Guaranty is a primary and original obligation of Guarantor and is 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, including any change of law. Guarantor agrees that it is directly, and jointly and severally with any other guarantor of the Guaranteed Obligations, liable to Bank, that the

obligations of Guarantor hereunder are independent of the obligations of Borrower or any other guarantor, and that a separate action may be brought against Guarantor whether such action is brought against Borrower or any other guarantor or whether Borrower or any such other guarantor is joined in such action. Guarantor agrees that its liability hereunder shall be immediate and shall not be contingent upon the exercise or enforcement by Bank of whatever remedies it may have against Borrower or any other guarantor, or the enforcement of any lien or realization upon any security Bank may at any time possess. Guarantor agrees that any release which may be given by Bank to Borrower or any other guarantor shall not release Guarantor. Guarantor consents and agrees that Bank shall be under no obligation (under Sections 2899 or 3433 of the California Civil Code or otherwise) to marshal any assets of Bo rrower or any other guarantor in favor of Guarantor, or against or in payment of any or all of the Guaranteed Obligations.

6. Waivers.

(a) Guarantor absolutely, unconditionally, knowingly, and expressly waives:

(i) (1) notice of acceptance hereof; (2) notice of any loans or other financial accommodations made or extended under the Term Loan Documents or the creation or existence of any Guaranteed Obligations; (3) notice of the amount of the Guaranteed Obligations, subject, however, to Guarantor’s right to make inquiry of Bank to ascertain the amount of the Guaranteed Obligations at any reasonable time; (4) notice of any adverse change in the financial condition of Borrower or of any other fact that might increase Guarantor’s risk hereunder; (5) notice of presentment for payment, demand, protest, and notice thereof as to any instruments among the Term Loan Documents; (6) notice of any unmatured event of default or event of default under the Loan Agreement; and (7) all other notices (except if such notice is specifically required to be given to Guarantor hereunder or under any Term Loan Document to which Guarantor is a party) and demands to which Guarantor might otherwise be entitled.

(ii) its right, under Sections 2845 or 2850 of the California Civil Code, or otherwise, to require Bank to institute suit against, or to exhaust any rights and remedies which Bank has or may have against, Borrower or any third party, or against any collateral for the Guaranteed Obligations provided by Borrower, Guarantor, or any third party. In this regard, Guarantor agrees that it is bound to the payment of all Guaranteed Obligations, whether now existing or hereafter accruing, as fully as if such Guaranteed Obligations were directly owing to Bank by Guarantor. Guarantor further waives any defense arising by reason of any disability or other defense (other than the defense that the Guaranteed Obligations shall have been fully an d finally performed and indefeasibly paid) of Borrower or by reason of the cessation from any cause whatsoever of the liability of Borrower in respect thereof.

(iii) (1) any rights to assert against Bank any defense (legal or equitable), set-off, counterclaim, or claim which Guarantor may now or at any time hereafter have against Borrower or any other party liable to Bank; (2) any defense, set-off, counterclaim, or claim, of any kind or nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity, or enforceability of the Guaranteed Obligations or any security therefor; (3) any defense Guarantor has to performance hereunder, and any right Guarantor has

to be exonerated, provided by Sections 2819, 2822, or 2825 of the California Civil Code, or otherwise, arising by reason of: the impairment or suspension of Bank’s rights or remedies against Borrower; the alteration by Bank of the Guaranteed Obligations; any discharge of Borrower’s obligations to Bank by operation of law as a result of Bank’s intervention or omission; or the acceptance by Bank of anything in partial satisfaction of the Guaranteed Obligations; (4) the benefit of any statute of limitations affecting Guarantor’s liability hereunder or the enforcement thereof, and any act which shall defer or delay the operation of any statute of limitations applicable to the Guaranteed Obligations shall similarly operate to defer or delay the operation of such statute of limitations applicable to Guarantor’s liability hereunder.

(b) Guarantor absolutely, unconditionally, knowingly, and expressly waives any defense arising by reason of or deriving from (i) any claim or defense based upon an election of remedies by Bank; or (ii) any election by Bank under Bankruptcy Code Section 1111(b) to limit the amount of, or any collateral securing, its claim against the Borrower.

(c) Until such time as all of the Guaranteed Obligations have been fully, finally, and indefeasibly paid in full in cash: (i) Guarantor hereby postpones any right of subrogation Guarantor has or may have as against Borrower with respect to the Guaranteed Obligations; (ii) Guarantor hereby postpones any right to proceed against Borrower or any other Person, now or hereafter, for contribution, indemnity, reimbursement, or any other suretyship rights and claims, whether direct or indirect, liquidated or contingent, whether arising under express or implied contract or by operation of law, which Guarantor may now have or hereafter have as against Borrower with respect to the Guaranteed Obligations; and (iii) Guarantor also he reby postpones any right to proceed or seek recourse against or with respect to any property or asset of Borrower.

(d) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR HEREBY ABSOLUTELY, KNOWINGLY, UNCONDITIONALLY, AND EXPRESSLY WAIVES AND AGREES NOT TO ASSERT ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE SECTIONS 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2825, 2839, 2845, 2848, 2849, AND 2850, AND CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE.

7. Releases. Guarantor consents and agrees that, without notice to or by Guarantor and without affecting or impairing the obligations of Guarantor hereunder, Bank may, by action or inaction:

(a) compromise, settle, extend the duration or the time for the payment of, or discharge the performance of, or may refuse to or otherwise not enforce the Term Loan Documents;

(b) release all or any one or more parties to any one or more of the Term Loan Documents or grant other indulgences to Borrower in respect thereof;

(d) release or substitute any other guarantor, if any, of the Guaranteed Obligations, or enforce, exchange, release (by action or inaction), or waive any security for the Guaranteed Obligations (including, the collateral referred to in Section 18 hereof) or any other guaranty of the Guaranteed Obligations, or any portion thereof.

8. No Election. Bank shall have the right to seek recourse against Guarantor to the fullest extent provided for herein, and no election by Bank to proceed in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of Bank’s right to proceed in any other form of action or proceeding or against other parties unless Bank has expressly waived such right in writing. Specifically, but without limiting the generality of the foregoing, no action or proceeding by Bank under any document or instrument evidencing the Guaranteed Obligations shall serve to diminish the liability of Guarantor under this Guaranty except to the extent that Bank finally and unconditionally shall have realized indefeasible payment by such action or proceeding.

9. Indefeasible Payment. The Guaranteed Obligations shall not be considered indefeasibly paid for purposes of this Guaranty unless and until all payments to Bank are no longer subject to any right on the part of any person, including Borrower, Borrower as a debtor in possession, or any trustee (whether appointed under the Bankruptcy Code or otherwise) of Borrower’s assets to invalidate or set aside such payments or to seek to recoup the amount of such payments or any portion thereof, or to declare same to be fraudulent or preferential. Upon such full and final performance and indefeasible payment of the Guaranteed Obligations whether by Guarantor or Borrower, Bank shall have no obligation whatsoever to transfer or assign its interest in the Term Loan Documents to Guarantor. In the event that, for any reason, any portion of such payments to Bank is set aside or restored, whether voluntarily or involuntarily, after the making thereof, then the obligation intended to be satisfied thereby shall be revived and continued in full force and effect as if said payment or payments had not been made, and Guarantor shall be liable for the full amount Bank is required to repay plus any and all costs and expenses (including attorneys’ fees) paid by Bank in connection therewith.

10. Financial Condition of Borrower. Guarantor represents and warrants to Bank that Guarantor is currently informed of the financial condition of Borrower and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Guaranteed Obligations. Guarantor further represents and warrants to Bank that Guarantor has read and understands the terms and conditions of the Loan Agreement and the other Term Loan Documents. Guarantor hereby covenants that Guarantor will continue to keep informed of Borrower’s financial condition, the financial condition of other guarantors, if any, and of all other circumstances which bear upon the risk of nonpayment or nonperformance of the Guaranteed Obligations.

11. Subordination. Guarantor hereby agrees that any and all present and future indebtedness of Borrower owing to Guarantor is postponed in favor of and subordinated to payment, in full, in cash, of the Guaranteed Obligations. In this regard, no payment of any kind

whatsoever shall be made with respect to such indebtedness until the Guaranteed Obligations have been indefeasibly paid in full.

12. Payments; Application. All payments to be made hereunder by Guarantor shall be made in lawful money of the United States of America at the time of payment, shall be made in immediately available funds, and shall be made without deduction (whether for taxes or otherwise) or offset. All payments made by Guarantor hereunder shall be applied as follows: first, to all costs and expenses (including attorneys’ fees) incurred by Bank in enforcing this Guaranty or in collecting the Guaranteed Obligations; second, to all accrued and unpaid interest, premium, if any, and fees owing to Bank constituting Guaranteed Obligations; and third, to the balance of the Guaranteed Obligati ons.

13. Attorneys’ Fees and Costs. Guarantor agrees to pay, on demand, all reasonable attorneys’ fees and all other costs and expenses which may be incurred by Bank in the enforcement of this Guaranty (including those brought relating to proceedings pursuant to 11 U.S.C.) or in any way arising out of, or consequential to the protection, assertion, or enforcement of the Guaranteed Obligations (or any security therefor), whether or not suit is brought.

14. Indemnification. Guarantor agrees to indemnify Bank and hold Bank harmless against all obligations, demands, or liabilities asserted by any party and against all losses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to Bank’s transactions with Borrower.

15. Notices. All notices or demands by Guarantor or Bank to the other relating to this Guaranty shall be in writing and either personally served or sent by registered or certified mail, postage prepaid, return receipt requested, overnight delivery service, or by telefacsimile, and shall be deemed to be given for purposes of this Guaranty on the earlier of the date of actual receipt or three days after the deposit thereof in the mail. Unless otherwise specified in a notice sent or delivered in accordance with the provisions of this section, such writing shall be sent as follows:

If to Bank:

U.S. Bank National Association

15910 Ventura Boulevard, Suite 1712

Encino, CA 91436

Attn: Gary Terrasi

Telefacsimile: (818) 789-3041

If to Guarantor:

Spell C, LLC

6835 Valjean Avenue

Van Nuys, California 91406

Telefacsimile: (818) 908-9191

16. Cumulative Remedies. No remedy under this Guaranty or under any Term Loan Document is intended to be exclusive of any other remedy, but each and every remedy shall be cumulative and in addition to any and every other remedy given hereunder or under any Term Loan Document, and those provided by law or in equity. No delay or omission by Bank to exercise any right under this Guaranty shall impair any such right nor be construed to be a waiver thereof. No failure on the part of Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.

17. Books and Records. Guarantor agrees that Bank’s books and records showing the account between Bank and Borrower shall be admissible in any action or proceeding and shall be binding upon Guarantor for the purpose of establishing the items therein set forth and shall constitute prima facie proof thereof.

18. Severability of Provisions. Any provision of this Guaranty which is prohibited or unenforceable under applicable law, shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof.

19. Entire Agreement; Amendments. This Guaranty constitutes the entire agreement between Guarantor and Bank pertaining to the subject matter contained herein. This Guaranty may not be altered, amended, or modified, nor may any provision hereof be waived or noncompliance therewith consented to, except by means of a writing executed by both Guarantor and Bank. Any such alteration, amendment, modification, waiver, or consent shall be effective only to the extent specified therein and for the specific purpose for which given. No course of dealing and no delay or waiver of any right or default under this Guaranty shall be deemed a waiver of any other, similar or dissim ilar right or default or otherwise prejudice the rights and remedies hereunder.

20. Successors and Assigns. The death of Guarantor shall not terminate this Guaranty. This Guaranty shall be binding upon Guarantor’s heirs, executors, administrators, representatives, successors and assigns and shall inure to the benefit of the successors and assigns of Bank; provided, however, Guarantor shall not assign this Guaranty or delegate any of its duties hereunder without Bank’s prior written consent. Any assignment without the consent of Bank shall be absolutely void. In the event of any assignment or other transfer of rights by Bank, the rights and benefits herein conferred upon Bank shall automatically extend to and be vested in such assign ee or other transferee.

21. Choice of Law and Venue. THE VALIDITY OF THIS GUARANTY, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF GUARANTOR AND BANK, SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA. GUARANTOR HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS GUARANTY SHALL BE TRIED AND DETERMINED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, OR, AT THE SOLE OPTION OF BANK, IN ANY OTHER COURT IN WHICH BANK SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND

WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. GUARANTOR HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION.

22. Waiver of Jury Trial. GUARANTOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY ACTION, CAUSE OF ACTION, CLAIM, DEMAND, OR PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS GUARANTY, OR IN ANY WAY CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE DEALINGS OF GUARANTOR AND BANK WITH RESPECT TO THIS GUARANTY, OR THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE. GUARANTOR HEREBY AGREES THAT ANY SUCH ACTION, CAUSE OF ACTION, CLAIM, DEMAND, OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT BANK MAY FILE AN ORIGINAL COUNTERPART OF THIS SECTION WITH ANY COURT OR OTHER TRIBUNAL AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTOR TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.

23. Waivers, Consents. Guarantor warrants and agrees that each of the waivers and consents set forth herein is made after consultation with legal counsel and with full knowledge of its significance and consequence, with the understanding that events giving rise to any defense or right waived may diminish, destroy, or otherwise adversely affect rights which Guarantor otherwise may have against Borrower, Bank, or others, or against any collateral, and that, under the circumstances, the waivers and consents herein given are reasonable and not contrary to public policy or law. If any of the waivers or consents herein are determined to be unenforceable under applicable law, such w aivers and consents shall be effective to the maximum extent permitted by law.

IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as of the date set forth in the first paragraph hereof.

	SPELL C, LLC,
	a Delaware limited liability company

	By:	/s/Henry Stupp
	Name:	Henry Stupp
	Title:	CEO

Continuing Guaranty

S-1

EX-10.5 6 a11-6535_1ex10d5.htm EX-10.5

Exhibit 10.5

CALIFORNIA JUDICIAL REFERENCE AGREEMENT

This California Judicial Reference Agreement (“Agreement”) is entered into in connection with any existing financing (other than consumer purpose financing) (“Financing”) provided by U.S. Bank National Association (“Bank”) to Cherokee Inc., a Delaware corporation (“Borrower”) evidenced, secured and/or supported by one or more promissory notes, loan agreements, security agreements, mortgages/deeds of trust, guaranties and/or other documents signed by the undersigned parties, including but not limited to the Guaranty executed by Spell C, LLC, a Delaware limited liability company (“Guarantor”) in favor of Bank in connection with the Financing (said promissory note and such other agreements, together with amendments, modifications, substitutions and replacements thereto, are hereinafter referred to as the “Loan Documents”).

For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto (collectively, the “Parties”) agree as follows:

1. Any and all disputes, claims and controversies arising out of the Loan Documents or the transactions contemplated thereby (including, but not limited to, actions arising in contract or tort and any claims by a Party against Bank related in any way to the Financing) (individually, a “Dispute”) that are brought before a forum in which pre-dispute waivers of the right to trial by jury are invalid under applicable law shall be subject to the terms of this Agreement in lieu of the jury trial waivers otherwise provided in the Loan Documents.

2. Any and all Disputes shall be heard by a referee and resolved by judicial reference pursuant to California Code of Civil Procedure Sections 638 et seq.

3. The referee shall be a retired California state court judge or an attorney licensed to practice law in the State of California with at least ten (10) years’ experience practicing commercial law. The Parties shall not seek to appoint a referee that may be disqualified pursuant to California Code of Civil Procedure Section 641 or 641.2 without the prior written consent of all Parties.

4. If the Parties are unable to agree upon a referee within ten (10) calendar days after one Party serves a written notice of intent for judicial reference upon the other Party or Parties, then the referee will be selected by the court in accordance with California Code of Civil Procedure Section 640(b).

5. The referee shall render a written statement of decision and shall conduct the proceedings in accordance with the California Code of Civil Procedure, the Rules of Court, and California Evidence Code, except as otherwise specifically agreed by the parties and approved by the referee. The referee’s statement of decision shall set forth findings of fact and conclusions of law. The decision of the referee shall be entered as a judgment in the court in accordance with the provisions of California Code of Civil Procedure Sections 644 and 645. The decisi on of the referee shall be appealable to the same extent and in the same manner that such decision would be appealable if rendered by a judge of the superior court.

6. Nothing in this Agreement shall be deemed to apply to or limit the right of Bank (a) to exercise self help remedies such as (but not limited to) setoff, or (b) to foreclose judicially or nonjudicially against any real or personal property collateral, or to exercise judicial or nonjudicial power of sale rights, (c) to obtain from a court provisional or ancillary remedies (including, but not limited to, injunctive relief, a writ of possession, prejudgment attachment, a protective order or the appointment of a receiver), or (d) to pursue rights against a Par ty in a third-party proceeding in any action brought against Bank (including actions in bankruptcy court). Bank may exercise the rights set forth in the foregoing clauses (a) through (d), inclusive, before, during or after the pendency of any judicial reference proceeding. Neither the exercise of self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies or the

opposition to any such provisional remedies shall constitute a waiver of the right of any Party, including, but not limited to, the claimant in any such action, to require submission to judicial reference the merits of the Dispute occasioning resort to such remedies. No provision in the Loan Documents regarding submission to jurisdiction and/or venue in any court is intended or shall be construed to be in derogation of the provisions in any Loan Document for judicial reference of any of Dispute.

7. If a Dispute includes multiple claims, some of which are found not subject to this Agreement, the Parties shall stay the proceedings of the Disputes or part or parts thereof not subject to this Agreement until all other Disputes or parts thereof are resolved in accordance with this Agreement. If there are Disputes by or against multiple parties, some of which are not subject to this Agreement, the Parties shall sever the Disputes subject to this Agreement and resolve them in accordance with this Agreement.

8. During the pendency of any Dispute which is submitted to judicial reference in accordance with this Agreement, each of the Parties to such Dispute shall bear equal shares of the fees charged and costs incurred by the referee in performing the services described in this Agreement. The compensation of the referee shall not exceed the prevailing rate for like services. The prevailing party shall be entitled to reasonable court costs and legal fees, including customary attorney fees, expert witness fees, paralegal fees, the fees of the referee and other reasonable co sts and disbursements charged to the party by its counsel, in such amount as is determined by the Referee.

9. In the event of any challenge to the legality or enforceability of this Agreement, the prevailing Party shall be entitled to recover the costs and expenses from the non-prevailing Party, including reasonable attorneys’ fees, incurred by it in connection therewith.

10. THIS AGREEMENT CONSTITUTES A “REFERENCE AGREEMENT” BETWEEN OR AMONG THE PARTIES WITHIN THE MEANING OF AND FOR PURPOSES OF CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 638.

[Signature page to follow]

Dated as of: February 16, 2011

Agreed to:

U.S. BANK NATIONAL ASSOCIATION

By:	/s/Gary P. Terrasi
Name	Gary P. Terrasi
Title:	Vice President


		CHEROKEE INC.,
		a Delaware corporation,
		as Borrower

		By:	/s/Henry Stupp
		Name	Henry Stupp
		Title:	CEO


		SPELL C, LLC,
		a Delaware limited liability company,
		as Guarantor

		By:	/s/Henry Stupp
		Name	Henry Stupp
		Title:	CEO

California Judicial Reference Agreement

S-1

-----END PRIVACY-ENHANCED MESSAGE-----