EXHIBIT 10.2

 

FIRST AMENDMENT TO TERM LOAN AGREEMENT

 

This First Amendment to Term Loan Agreement (this “Amendment”) is entered into
as of September 6, 2011, by and between CHEROKEE INC., a Delaware corporation
(“Borrower”) and U.S. BANK NATIONAL ASSOCIATION, a national banking association
(“Bank”).

 

RECITALS

 

A.            Bank has provided a term loan to Borrower pursuant to the terms,
conditions and other provisions of that certain Term Loan Agreement dated as of
February 16, 2011 by and between Borrower and Bank (as such document may have
been previously amended, modified, revised, supplemented, extended, restated or
replaced, the “Existing Agreement”).

 

B.            Borrower and Bank have agreed to certain amendments and
modifications of the Existing Agreement on the terms and conditions described
herein.

 

C.            The Existing Agreement, as amended and modified by this Amendment,
is referred to hereinafter as the “Agreement.”

 

AGREEMENT

 

1.             RECITALS AND DEFINITIONS.  The Recitals above are incorporated
herein by this reference as if fully set forth herein.  Capitalized terms not
defined in the Recitals or otherwise in this Amendment shall have the meanings
ascribed to them in the Existing Agreement, or if not defined in the Existing
Agreement, the meanings ascribed to them by generally accepted accounting
principles.

 

2.             MODIFICATION OF DEFINITIONS.

 

2.1           The definition of “Fixed Charge Coverage Ratio” as set forth in
Section 1.12 of the Existing Agreement is hereby amended and restated as
follows:

 

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.

 

2.2           The definition of “Tangible Net Worth” as set forth in
Section 1.35 of the Existing Agreement is hereby amended and restated as
follows:

 

1.35         “Tangible Net Worth” means net worth less intangible assets
(including patents, trademarks and debt issuance; provided, however, that
intangible assets acquired by Borrower from the Closing Date which are permitted
under Section 9.12 shall not reduce Tangible Net Worth), and less loans to
shareholders, affiliates and employees.

 

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2.3           Effective as of April 30, 2011, Section 9.4(A) of the Existing
Agreement is hereby amended and restated as follows:

 

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.  For the fiscal
quarters ending April 30, 2011, July 31, 2011 and October 31, 2011, the Fixed
Charge Coverage Ratio will be measured on a Fiscal 2012 year-to-date basis.

 

2.4           Effective as of April 30, 2011, Section 9.4(B) of the Existing
Agreement is hereby amended and restated as follows:

 

B.            Minimum Tangible Net Worth. Borrower shall maintain its Tangible
Net Worth at an amount not less that $1,200,000 for the fiscal quarter ending
April 30, 2011, and for the second fiscal quarter ending July 31, 2011, at an
amount not less than $5,500,000 plus new equity issued and less treasury stock
purchased during such second fiscal quarter (“Base Line Amount”).  For each
fiscal quarter thereafter, Borrower shall maintain its Tangible Net Worth at an
amount not less than the Base Line Amount plus 25% of the aggregate quarterly
positive net profit of Borrower (with no reduction for a net loss) plus
accumulated new equity issued less accumulated treasury stock purchased, for
each quarter ending after the Borrower’s second fiscal quarter ending July 31,
2011, measured quarterly as of the last day of each quarter.

 

2.5           Section 9.12 of the Existing Agreement is hereby amended and
restated as follows:

 

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
$5,000,000 in any fiscal year and not greater than $10,000,000 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.

 

3.             REPRESENTATIONS, WARRANTIES AND COVENANTS.  Before and after
giving effect to this Amendment, the representations and warranties in the
Existing Agreement shall be true and correct as though such representations and
warranties were made on the date hereof.  The execution by Borrower of this
Amendment shall be deemed a representation that Borrower has complied with the
foregoing condition.  In addition, Borrower reaffirms all covenants contained in
the Agreement, as though such covenants were made on the date hereof.

 

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All of the terms of the Existing Agreement, except as expressly amended by this
Amendment, shall remain unchanged and in full force and effect, and the remaking
of the representations and warranties, and reaffirmation of the covenants, does
not in any way limit the continued applicability of all the provisions of the
Existing Agreement, as amended by this Amendment.

 

4.             CONDITIONS TO EFFECTIVENESS.  This Amendment shall become
effective upon the execution in full and delivery to Bank of this Amendment.

 

5.             MISCELLANEOUS.

 

5.1           This Amendment may be executed in any number of counterparts, each
of which shall be an original with the same effect as if the signatures thereto
and hereto were upon the same instrument.

 

5.2           This Amendment shall be governed by and construed in accordance
with the laws of the State of California.

 

5.3           Each party to this Amendment shall perform any further acts and
sign and deliver any further documents and/or instruments that are reasonably
necessary to carry out the provisions of this Amendment.

 

5.4           Except as expressly modified herein or in other writings executed
by Bank, Existing Agreement and the Term Loan Documents remain unmodified and in
full force and effect.

 

5.5           This Amendment shall apply to, inure to the benefit of, and bind
all parties hereto and their respective heirs, legatees, devisees,
administrators, executors, successors and assigns; provided, however, that
Borrower and Guarantors may not assign or transfer their obligations hereunder
or under the Agreement without the prior written consent of Bank.

 

5.6           Section and subsection headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose or be given any substantive effect.

 

5.7           Borrower and Guarantors hereby acknowledge and agree that Bank’s
execution and performance of this Amendment does not obligate Bank to make any
future modifications to the Agreement or the Term Loan Documents.

 

5.8           This Amendment contains the entire agreement and understanding
concerning the subject matter herein, supersedes and replaces all prior
negotiations and agreements among the parties hereto, or any of them, whether
oral or written, and may not be modified or amended without the written consent
of all the parties hereto.

 

5.9           Understanding of Borrower and Guarantors.

 

PRIOR TO SIGNING THIS AMENDMENT, BORROWER AND GUARANTORS READ AND UNDERSTOOD ALL
THE PROVISIONS OF THIS AMENDMENT AND ANY AND ALL TERM LOAN DOCUMENTS.

 

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IN WITNESS WHEREOF, each of Borrower and Bank agree to the terms and conditions
of this Amendment as set forth above.

 

Dated as of September 6, 2011

 

Borrower:

 

CHEROKEE INC., a Delaware corporation

 

 

 

By:

/s/ Henry Stupp

 

Name:

Henry Stupp

 

Title:

CEO

 

 

 

U.S. BANK NATIONAL ASSOCIATION

 

 

 

By:

/s/ Lisa Stavro

 

Name:

Lisa Stavro

 

Title:

Vice President

 

 

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REAFFIRMATION OF GUARANTY

 

The undersigned (“Guarantor”), has executed a Continuing Guaranty (Unlimited),
dated as of February 16, 2011 (as amended, restated or otherwise modified from
time to time, the “Guaranty”), in favor of U.S. Bank National Association
(“Bank”) respecting the obligations of CHEROKEE INC., a Delaware corporation
(the “Borrower”), owing to Bank.

 

Guarantor acknowledges the terms of the attached amendment (the “Amendment”),
and reaffirms and agrees that (a) the Guaranty executed by the undersigned shall
remain in full force and effect, (b) nothing in such Guaranty obligates Bank to
notify the undersigned of any changes in the financial accommodations made
available to Borrower or to seek reaffirmation of the Guaranty, and (c) no
requirement to so notify the undersigned or to seek reaffirmation in the future
shall be implied by the execution of this reaffirmation.

 

Date: as of September 6, 2011

 

 

 

 

 

Guarantor:

 

 

 

 

 

SPELL C, LLC,

 

a Delaware limited liability company

 

 

 

By:

/s/ Henry Stupp

 

Name:

Henry Stupp

 

Title:

CEO

 

 

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