CONFORMED COPY
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of December 23, 1997 between SPELL C. LLC, a
Delaware limited liability company (with its successors, "SPV"), and Wilmington
Trust Company, a Delaware banking corporation, not in its individual capacity,
but solely as Trustee (the "TRUSTEE").
W I T N E S S E T H :
WHEREAS, SPV and Trustee are parties to an Indenture dated as of the date
hereof (as the same may be amended from time to time, the "INDENTURE"); and
WHEREAS, SPV has agreed to grant a continuing security interest in and to
its Collateral (as hereafter defined) to secure its obligations under the
Indenture and the Notes issued pursuant thereto;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Definitions. Terms defined in the Indenture and not otherwise
defined herein have, as used herein, the respective meanings provided for
therein. The following additional terms, as used herein, have the following
respective meanings:
"COLLATERAL" means the Trust Estate.
"PROCEEDS" means all proceeds of, and all other profits, rentals or
receipts, in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or realization upon, collateral,
including without limitation all claims against third parties for loss of or
damage to any collateral, and any condemnation or requisition payments with
respect to any collateral, in each case whether now existing or hereafter
arising.
"SECURED OBLIGATIONS" means the obligations of SPV secured under this
Agreement consisting of (i) all amounts payable with respect to any Note issued
pursuant to the Indenture, whether characterized as Original Value, Current
Value, principal, Make-Whole Amount (if any), Original Issue Discount or default
interest (if any) (including, without limitation, any Original Issue Discount or
default interest which accrues after the commencement of any case, proceeding or
other action relating to the bankruptcy, insolvency or reorganization of SPV) or
otherwise, the amount thereof at any point in time as determined in accordance
with the Indenture, (ii) all other amounts payable by SPV hereunder or under the
Indenture, the Note Purchase Agreement or any Note and (iii) any renewals or
extensions of any of the foregoing.
"SECURITY INTERESTS" means the security interests in the Collateral granted
hereunder and under the Indenture securing the Secured Obligations.
"TRADEMARK COLLATERAL" means the collateral in which a security interest is
granted by SPV pursuant to Section 3 hereof.
"TRADEMARK RIGHTS" has the meaning assigned to that term in the Trademark
Purchase and License Assignment Agreement.
"TRADEMARK SECURITY AGREEMENT" means the Trademark Security Agreement
executed and delivered by SPV in favor of Trustee, for the ratable benefit of
the Noteholders, substantially in the form of Annex A hereto, as amended from
time to time.
"UCC" means the Uniform Commercial Code as in effect on the date hereof in
the State of New York; provided that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non-perfection of the
Security Interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than New York, "UCC" means the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or effect of perfection or non-
perfection.
Section 2. Representations and Warranties. SPV represents and warrants as
of the date hereof as follows:
(i) SPV is the sole owner of each item of its Collateral in which
it purports to grant a security interest hereunder and has good and
marketable title to all of such Collateral, free and clear of any Liens
other than the Security Interests and the Other Permitted Licenses.
(ii) Other than financing statements or other similar or equivalent
documents or instruments with respect to the Security Interests, no
financing statement, mortgage, security agreement or similar or equivalent
document or instrument covering all or any part of the Collateral is on
file
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or of record in any jurisdiction in which such filing or recording would
be effective to perfect a Lien on such Collateral.
(iii) Not later than 30 days following the date hereof, SPV shall
furnish to Trustee file search reports from the UCC filing offices of the
Secretaries of State of California and Delaware confirming the filings
contemplated by Section 4.08 of the Note Purchase Agreement.
(iv) The Security Interests granted hereunder constitute valid
security interests under the UCC securing the Secured Obligations. When UCC
financing statements shall have been filed in the offices specified in
clause (iii) above, the Security Interests shall constitute perfected
security interests in the Collateral to the extent that a security interest
therein may be perfected by filing pursuant to the UCC, prior to all other
Liens and rights of others therein. When the Trademark Security Agreement
shall have been recorded with the United States Patent and Trademark
Office, the Security Interests granted hereunder shall constitute valid and
perfected security interests in all right, title and interest of SPV in the
Trademark to the extent that such security interests may be perfected under
the United States Trademark Act, U.S. Code, Title 15, prior to all other
Liens and rights of others therein.
Section 3. The Security Interests. In order to secure the full and
punctual payment of the Secured Obligations in accordance with the terms
thereof, and to secure the performance of all of the obligations of SPV
hereunder:
(a) SPV hereby assigns and grants to Trustee, for its benefit and for the
ratable benefit of the Noteholders, a continuing security interest in and to all
of the following property of SPV, whether now owned or existing or hereafter
acquired or arising:
(i) all right, title and interest in the Trademark and the Trademark
Rights, together with any extensions or renewals thereof, and all existing
and future applications therefor and registrations thereof, together with
the goodwill of the business connected with the use of or symbolized by the
Trademark and the Trademark Rights and all applications therefor and
registrations thereof, including without limitation any and all claims and
causes of action which may arise by reason of unfair competition therewith,
infringement, violation or dilution thereof or injury to the Trademark or
any of the Trademark Rights or any registration thereof or application
therefor or the goodwill associated with any of the foregoing;
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(ii) all right, title and interest in and to each Trademark License,
including, without limitation, all obligations and indebtedness owing to
SPV under such Trademark Licenses (including, without limitation, any such
obligation which might be characterized as an account, contract right or
general intangible under the Uniform Commercial Code in effect in any
jurisdiction), all monies, fees, income, royalties, revenues, rents or
profits due or to become due to SPV under such Trademark Licenses (whether
or not yet earned by performance by SPV), all claims of SPV arising under
or pursuant to or in connection with such Trademark Licenses (whether for
damages, indemnity, payments for past, present or future infringements
thereof, unfair competition with or injury to the Trademark or any of the
Trademark Rights or the goodwill associated therewith, or otherwise), all
of SPV's right to perform thereunder or to compel performance or otherwise
exercise remedies thereunder and all collateral security or guarantees of
any kind given by any Person with respect to any of the foregoing;
(iii) all of SPV's right, title and interest in and to any other
intellectual property, goodwill, trade secrets, permits and licenses
associated with the Trademark or any Trademark License;
(iv) all of SPV's right, title and interest in and to the
Administrative Services Agreement and the Trademark Purchase and License
Assignment Agreement;
(v) all books and records of SPV (including, without limitation,
customer lists, marketing information, credit files, price lists, operating
records, accounting records, sales or promotional literature, computer
programs, printouts and other computer materials and records) pertaining to
any of the foregoing; and
(vi) all Proceeds of any of the foregoing;
provided that except as contemplated by the definition of Trademark
License, the Trademark Collateral does not include any interest in the Cherokee
Licenses.
(b) The Security Interests are granted as security only and shall not
subject Trustee or any Noteholder to, or transfer or in any way affect or
modify, any obligation or liability of SPV with respect to any of the Collateral
or any transaction in connection therewith.
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Section 4. Further Assurances; Covenants. (a) SPV will not change its
name, identity or limited liability company structure in any manner unless it
shall have given Trustee at least 30 days' prior notice thereof. SPV will not
change the location of its chief executive office or chief place of business
unless it shall have given Trustee at least 30 days' prior notice thereof.
(b) SPV will, from time to time, at its expense, execute, deliver, file
and record any statement, assignment, instrument, document, agreement or other
paper and take any other action (including, without limitation, any filings with
the United States Patent and Trademark Office and any filings of financing or
continuation statements under the UCC), that from time to time may be necessary,
or that Trustee may reasonably request, in order to create, preserve, perfect,
confirm or validate the Security Interests or to enable Trustee and the
Noteholders to obtain the full benefits of this Agreement, or to enable Trustee
to exercise and enforce any of its rights, powers and remedies hereunder with
respect to any of the Collateral. To the extent permitted by applicable law,
SPV hereby authorizes Trustee to execute and file financing statements or
continuation statements without SPV's signature appearing thereon. SPV agrees
that a carbon, photographic, photostatic or other reproduction of this Agreement
or of a financing statement is sufficient as a financing statement. SPV shall
pay the costs of, or incidental to, any recording or filing of any financing or
continuation statements concerning the Collateral.
(c) SPV shall notify Trustee promptly if it knows, or has reason to know,
that any registration relating to the Trademark Rights may become abandoned, or
of any materially adverse determination or development (including, without
limitation, the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office or any court)
regarding SPV's ownership of the Trademark, its right to register the same, or
to keep and maintain the same. In the event that the Trademark Rights or any
Trademark License is materially breached, infringed, misappropriated or diluted
by a third party, SPV shall notify Trustee promptly after it learns thereof and
shall, unless SPV shall reasonably determine that any such action would be of
negligible economic value, promptly take such action as SPV reasonably believes
appropriate, including to xxx for breach, infringement, misappropriation or
dilution and to recover any and all damages for such breach, infringement,
misappropriation or dilution, and take such other actions as SPV shall
reasonably deem appropriate under the circumstances to protect the Trademark
Rights or such Trademark License. In the event SPV shall, either itself or
through any agent, employee or licensee, after the date hereof file a new
application for the registration of the Trademark Rights purported to be or to
become subject to the Lien hereof with the United States Patent and Trademark
Office, it shall promptly thereafter notify the Trustee thereof and execute,
deliver and file or record any and
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all agreements, instruments, documents and papers as may be necessary or as
Trustee may reasonably request to evidence the Security Interests in the
Trademark Rights and the goodwill and general intangibles of SPV relating
thereto or represented thereby.
Section 5. Payments, Etc. in Respect of Collateral. SPV shall have the
right to receive payments, income, royalties, profits, rents, proceeds or other
distributions due or to become due, and all instruments and other property
received, receivable or otherwise distributed in respect of, or in exchange for,
any of its Collateral only in accordance with Articles 3 and 4 of the Indenture.
Section 6. General Authority. SPV hereby irrevocably appoints Trustee its
true and lawful attorney, with full power of substitution, in the name of SPV,
to the extent permitted by law, to exercise, at any time and from time to time
during the continuance of an Event of Default, all or any of the following
powers with respect to all or any of the Collateral:
(i) to demand, xxx for, collect, receive and give acquittance for
any and all monies due or to become due thereon or by virtue thereof,
(ii) to file any claims or take any action or institute any
proceeding to enforce the rights of Trustee with respect to any of such
Collateral or to enforce compliance with the terms of the Trademark
Licenses included in the Collateral;
(iii) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto,
(iv) subject to the limitation as to commercial reasonableness
specified in Section 8.04(b)(v) of the Indenture, to sell, license,
transfer, assign or otherwise deal in or with the same or the proceeds or
avails thereof, in whole or in part, as fully and effectually as if Trustee
were the absolute owner thereof, and
(v) to extend the time of payment of any or all thereof and to
make any allowance and other adjustments with reference thereto;
provided that Trustee shall give SPV not less than ten days' prior written
notice of the time and place of any sale or other intended disposition of any of
the Collateral, except any such Collateral which threatens to decline speedily
in value or is of a type customarily sold on a recognized market. SPV agrees
that such notice constitutes "reasonable notification" within the meaning of
Section 9-504(3) of the UCC.
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Section 7. Remedies upon Event of Default. (a) If any Event of Default
has occurred and is continuing, Trustee may exercise on behalf of the
Noteholders all rights of a secured party under the UCC (whether or not in
effect in the jurisdiction where such rights are exercised) and, in addition,
Trustee may, without being required to give any notice, except as herein
provided or as may be required by mandatory provisions of law, (i) exercise any
and all rights and remedies of SPV under or in connection with the Trademark
Licenses or otherwise in respect of Collateral, including, without limitation,
any and all rights of SPV to demand or otherwise require payment of any amount
under or performance of any provision of any contract, license or agreement
included in the Collateral, (ii) apply cash, if any, then held by it as
Collateral as specified in Section 9 and (iii) if there shall be no such cash or
if such cash shall be insufficient to pay all the Secured Obligations in full,
sell such Collateral or any part thereof at public or private sale, for cash,
upon credit or for future delivery, and at such price or prices and on such
terms as Trustee may deem satisfactory; provided that Trustee shall not
terminate Cherokee's service as Administrator under the Administrative Services
Agreement unless it shall have retained a reasonably qualified successor
Administrator thereunder.
(b) Without limiting the generality of the foregoing, if any Event of
Default has occurred and is continuing,
(i) So long as doing so would not violate the terms of the License
Agreement, Trustee may (subject to the rights of the licensees under the
Cherokee Licenses) license, or sublicense, whether general, special or
otherwise, and whether on an exclusive or non-exclusive basis, the
Trademark anywhere in the United States of America for such term or terms,
on such conditions and in such manner as Trustee shall in its sole
discretion determine;
(ii) Trustee may (without assuming any obligations or liability
thereunder), at any time and from time to time, enforce (and shall have the
exclusive right to enforce) against any licensor, franchisee, licensee or
sublicensee all rights and remedies of SPV in, to and under the Trademark
Licenses and take or refrain from taking any action under any thereof, and
SPV hereby releases Trustee and each of the Noteholders from, and agrees to
hold Trustee and each of the Noteholders free and harmless from and against
any claims arising out of, any lawful action hereby permitted to be so
taken or omitted to be taken with respect thereto; and
(iii) In the event of any such disposition pursuant to this Section,
SPV shall supply to Trustee SPV's records relating to the Trademark Rights
(subject to the limitation specified in Article 5 of the Indenture).
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Section 8. Limitation on Duty of Agent in Respect of Collateral. The
powers conferred on Trustee hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Beyond the exercise of reasonable care of Collateral in its custody and the
accounting for any monies actually received by it hereunder and under the
Indenture, Trustee shall have no duty as to any Collateral in its possession or
control or in the possession or control of any agent or any income thereon or as
to the preservation of rights against prior parties or any other rights
pertaining thereto, except as otherwise specified in the Indenture. Trustee
shall be deemed to have exercised reasonable care in the custody of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which it accords its own property.
Section 9. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, the proceeds of any sale of, or other
realization upon, all or any part of the Collateral and any cash held in respect
thereof shall be applied by Trustee as specified in Section 8.02 of the
Indenture.
Section 10. Appointment of Co-Agents. At any time or times, in order to
comply with any legal requirement in any jurisdiction, Trustee may appoint
another bank or trust company or one or more other persons, either to act as co-
agent or co-agents, jointly with Trustee, or to act as separate agent or agents
on behalf of the Noteholders with such power and authority as may be necessary
for the effectual operation of the provisions hereof and may be specified in the
instrument of appointment (which may, in the discretion of Trustee, include
provisions for the protection of such co-agent or separate agent similar to the
provisions of Sections 8 and 11).
Section 11. Expenses. In the event that SPV fails to comply with the
provisions of the Indenture, such that the value of any of the Collateral or the
validity, perfection, rank or value of any Security Interest therein is thereby
diminished or potentially diminished or put at risk, Trustee if requested by the
Majority Noteholders may, but shall not be required to, effect such compliance
on behalf of SPV and SPV shall reimburse Trustee for the reasonable costs
thereof on demand. All expenses of protecting, appraising, insuring and
maintaining any Collateral, any and all excise, property, sales, and use taxes
or other similar taxes imposed by any state, federal, or local authority on any
of such Collateral, or in respect of the sale or other disposition thereof shall
be borne and paid by SPV; and if SPV fails to promptly pay any portion thereof
when due, Trustee or any Noteholder may, at its option, but shall not be
required to, pay the same and charge SPV's account therefor, and SPV agrees to
reimburse Trustee or such Noteholder therefor on demand. All sums so paid or
incurred by Trustee or any
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Noteholder for any of the foregoing and any and all other sums for which SPV may
become liable hereunder and all costs and expenses (including attorneys' fees,
legal expenses and court costs) reasonably incurred by Trustee or any Noteholder
(i) in enforcing or protecting the Security Interests in the Collateral or any
of their rights or remedies under this Agreement, (ii) in the exercise or
enforcement of any of the rights of Trustee or the Noteholders hereunder and the
exercise and enforcement by Trustee of any of the rights of SPV under the
Trademark Licenses or any other Collateral or (iii) arising out of the failure
by SPV to perform or observe its obligations hereunder, shall, together with
interest thereon for each day until paid at a rate per annum equal to the
Default Rate, be additional Secured Obligations of SPV hereunder.
Section 12. Termination of Security Interests; Release of Collateral. Upon
the repayment in full of all Secured Obligations in accordance with the terms
thereof, of the Indenture and of the Note Purchase Agreement, the Security
Interests shall terminate and all rights to the Collateral shall revert to SPV.
At any time and from time to time prior to such termination of the Security
Interests, Trustee may release any of the Collateral with the prior written
consent of all Noteholders. Upon any such termination of the Security Interests
or release of Collateral, Trustee will, at the expense of SPV, execute and
deliver to SPV such documents as SPV shall reasonably request to evidence the
termination of the Security Interests or the release of its Collateral, as the
case may be.
Section 13. Notices. All notices or other communications hereunder shall
be in writing (including telecopy or similar writing) and shall be given to such
party (x) in the case of Trustee, at its address or telecopy number specified in
Section 14.02 of the Indenture or (y) in the case of SPV at the address or
telecopy number of SPV specified in Section 14.02 of the Indenture (with copies
in each case to the Administrator under the Administrative Services Agreement,
at its address specified in Section 9 of the Administrative Services Agreement)
or such other address or telecopy number as such party may hereafter specify for
such purpose by notice to the other party. Each such notice, request or other
communication shall become effective when received.
Section 14. Waivers, Non-Exclusive Remedies. No failure on the part of
Trustee to exercise, and no delay in exercising and no course of dealing with
respect to, any right under this Agreement shall operate as a waiver thereof;
nor shall any single or partial exercise by Trustee of any right under this
Agreement or the Indenture preclude any other or further exercise thereof or the
exercise of any other right. The rights in this Agreement and the Indenture are
cumulative and are not exclusive of any other remedies provided by law.
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Section 15. Successors and Assigns. This Agreement is for the benefit of
Trustee and the Noteholders and their successors and assigns, and in the event
of an assignment of all or any of the Secured Obligations, the rights hereunder,
to the extent applicable to the indebtedness so assigned, shall be transferred
with such indebtedness. This Agreement shall be binding on SPV and its
respective successors and permitted assigns.
Section 16. Changes in Writing. This Agreement and any provision hereof
may be changed, waived, discharged or terminated only subject to the Indenture
and as agreed in writing between the parties hereto.
Section 17. New York Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York, except as otherwise
required by mandatory provisions of law and except to the extent that remedies
provided by the laws of any jurisdiction other than New York are governed by the
laws of such jurisdiction.
Section 18. Severability. If any provision hereof is invalid or
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of Trustee and the
Noteholders in order to carry out the intentions of the parties hereto as nearly
as may be possible; and (ii) the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability of
such provision in any other jurisdiction.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SPELL C. LLC
By: /s/ Xxxxx Xxxxxxx
----------------------------
Name: Xxxxx Xxxxxxx
Title: Secretary and Treasurer
WILMINGTON TRUST COMPANY
By: /s/ Xxxxxx X. XxxXxxxxx
---------------------------------
Name: Xxxxxx X. XxxXxxxxx
Title: Assistant Vice President
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