Administrative Services Agreement

ADMINISTRATIVE SERVICES AGREEMENT


This ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement") is entered into as of December 23, 1997, by and between SPELL C. LLC, a Delaware limited liability company (the "Company"), and Cherokee Inc., a Delaware corporation, as administrator hereunder (in such capacity, the "Administrator").


RECITALS


WHEREAS, Cherokee Inc., a Delaware corporation ("Cherokee"), has transferred and assigned to the Company certain trademarks and rights under the License Agreement (as defined below) pursuant to that certain Trademark Purchase and License Assignment Agreement dated as of December 23, 1997 (as amended, restated, supplemented or otherwise modified from time to time, the "Trademark Agreement"), including all rights and obligations of Cherokee as licensor under that certain License Agreement dated as of November 12, 1997 (as amended, restated, supplemented or otherwise modified from time to time, the "License Agreement"), by and between Cherokee and Dayton Hudson Corporation (the "Licensee"); and


WHEREAS, the Company has entered into that certain Indenture dated as of December 23, 1997 (as amended, restated, supplemented or otherwise modified from time to time, the "Indenture"), by and between the Company and the trustee named therein (in such capacity, the "Trustee"), pursuant to which the Company has issued certain Notes which are secured by a security interest in the Company's rights in the Trademark and the License Agreement; and


WHEREAS, the Administrator has developed certain familiarity with and expertise in connection with establishing, maintaining and protecting the Trademark and the rights under the License Agreement, as well as the administration of the License Agreement; and


WHEREAS, the Company has requested that the Administrator perform certain administrative duties on behalf of the Company in connection with, among other things, the Trademark and the License Agreement, and the Administrator is willing to so perform such duties, all on the terms set forth herein.


NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:


AGREEMENT


1. Definitions. Capitalized terms used and not otherwise defined
----------- herein shall have the meanings given in the Indenture.


2. Appointment of Administrator. Until such time as the Company
---------------------------- designates a new Administrator, Cherokee is hereby designated as, and hereby agrees


to perform the duties and obligations of, the Administrator pursuant hereto. The Administrator shall perform its obligations pursuant hereto not as an agent of the Company but as an independent contractor and shall clearly identify to all third parties that it is acting in its capacity as the Administrator pursuant to this Agreement, and is not itself the owner of the Trademark or the License Agreement. The Administrator may, with the prior written consent of the Company (which consent shall not be unreasonably withheld or delayed), sub-contract certain of its administrative activities hereunder, provided that the Administrator shall not be relieved of its obligations and duties hereunder and shall remain fully liable therefor and for any action or inaction of any such subcontractor.


3. Administrator Duties. The Administrator shall perform the
-------------------- following duties for the benefit of the Company, subject to the further direction of the Company:


a. Quality Control. The Company shall consult with the
--------------- Administrator and shall establish standards of quality for goods and services with which the Trademark is to be used by the Licensee. The Administrator shall monitor the quality of all goods and services in connection with which the Licensee (and any other licensee of the Trademark) uses the Trademark. From time to time, upon request of the Administrator, the Company shall direct the Licensee to submit to the Administrator, or to otherwise make available for inspection by the Administrator, specimens of goods and other materials on or in connection with which the Trademark is used. The Administrator shall report to the Company in the event the Administrator discovers that any goods or services in connection with which the Trademark is used fail to satisfy the Company's quality standards. The Administrator shall take such action as may be necessary or as the Company shall reasonably direct to cause Licensee to restore the quality of goods and/or services offered by the Licensee in connection with the Trademark to the Company's standards. Such action may include, without limitation, notifying the Licensee of its breach of covenant to maintain product quality, overseeing Licensee's efforts to restore product quality, and (only if the Company expressly so directs) taking action to terminate the license granted to the Licensee under License Agreement if Licensee's failure to satisfy the Company's quality standards continues.


b. Applications and Registrations. The Administrator shall file
------------------------------ in the name of the Company and thereafter diligently prosecute such applications to register the Trademark in the United States in connection with such goods and/or services as may be required under the License Agreement or as the Company, after consulting with the Administrator, shall reasonably direct. The Administrator shall take such actions as it determines appropriate to maintain registrations for the Trademark in the United States. The Company shall cooperate with the Administrator as shall be reasonably necessary or as the Administrator may reasonably request to file, prosecute and maintain such applications and registrations for the Trademark. The fees and costs for filing, prosecuting and maintaining applications and registrations for the Trademark shall be borne in accordance with Section 6 of this Agreement.


2


Notwithstanding the foregoing, the Administrator shall not be obligated to file or prosecute any application if (i) the Administrator has a reasonable belief that it is unlikely that such application would proceed to registration and (ii) it promptly notifies the Company in writing to such effect.


c. Trademark Protection. The Company agrees to notify the
-------------------- Administrator promptly in writing in the event it becomes aware that (i) any legal action is threatened or instituted against the Company or the Licensee relating to the use of the Trademark by the Company or the Licensee, or (ii) the Company or the Licensee become aware of any infringement or illegal use by any third party of the Trademark. The Administrator shall take such action (including without limitation engaging counsel, and filing lawsuits, cancellation petitions and notices of opposition) as may be necessary or as the Company may reasonably direct to protect the Trademark and the rights of the Company and the Licensee to use the Trademark. The Company shall cooperate with the Administrator as shall be reasonably required in stopping any infringement of the Trademark or defending or instituting action to protect the Trademark. The Company shall serve as a named party in any suit, action or proceeding brought by the Administrator to protect the Trademark. The cost and expense of any such suit, action or proceeding and otherwise relating to trademark quality and control, applications and registrations, and protection shall be borne in accordance with Section 6 below. Notwithstanding the foregoing, the Administrator shall not be required to institute legal action if (i) in the reasonable opinion of the Administrator and its counsel, the probability of success of such legal action does not justify the time and expense which would be incurred in instituting such legal action and (ii) it promptly notifies the Company in writing to such effect.


d. Use of Trademark. The Administrator shall cooperate with the
---------------- Licensee as shall be reasonably necessary to enable the Licensee to establish use of the Trademark in connection with goods and services and as may be required under the License Agreement or as the Company shall from time to time reasonably direct.


e. Licensor Duties. The Administrator shall generally review
--------------- such reports and other communications from the Licensee it receives relating to the License Agreement, the Trademark, or the Licensee's performance or obligations under the License Agreement. The Administrator shall provide periodic reports to the Company, on its view of the status of the Licensee's performance under the License Agreement. At the Company's reasonable direction, the Administrator shall engage personnel to inspect ...