<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 3)*
CHEROKEE INC.
(Name of Issuer)
COMMON STOCK
(Title of Class of Securities)
16444H102
(CUSIP Number)
Barry L. Burten, Esq.
c/o Jeffer, Mangels, Butler & Marmaro,
2121 Avenue of the Stars, 10th Floor, Los Angeles, California 90067
(310) 203-8080
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
March 23, 1996
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement [ ]. (A fee
is not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE> 2
SCHEDULE 13D
CUSIP NO. 164 44H-10-2 PAGE 2 OF 5 PAGES
<TABLE>
<S> <C> <C>
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Robert Margolis
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
7 SOLE VOTING POWER
319,840 shares of Common Stock
------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 2,125,186
OWNED BY -----------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 319,840 shares of Common Stock
WITH -----------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,125,186
-----------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
2,445,026 shares of Common Stock
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.44%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- -------------------------------------------------------------------------------
</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE> 3
CUSIP No. 16444H102 Page 3 of 5 Pages
This Amendment No. 3 (this "Amendment No. 3"), filed on behalf
of Robert Margolis, a citizen of the United States, amends and supplements the
statements on Schedule 13D, as originally filed with the Securities and
Exchange Commission (the "Commission") with respect to Mr. Margolis' ownership
of common stock, par value $.02 per share, of Cherokee Inc. (the "Issuer"), as
previously amended by two (2) separate amendments thereto, each filed with the
Commission (as so previously amended, the "Schedule 13D"). Unless otherwise
indicated, all information contained in the Schedule 13D shall not be
invalidated by the filing of this Amendment No. 3 and shall remain as true and
correct as of the date hereof with reference to the facts in existence as of
the date the Schedule 13D or amendment containing such information was filed
with the Commission.
The sole purpose of this Amendment No. 2 is to report the
acquisition by The Newstar Group, Inc. ("Newstar"), a California corporation of
which Mr. Margolis is the chief executive officer and majority shareholder, of
shares of common stock of the Issuer and of options to acquire shares of common
stock by the Issuer. Newstar is concurrently filing a Schedule 13D reflecting
this acquisition.
Item 1. Security and Issuer.
Securities:
Common Stock, $.02 par value ("Common Stock").
Options to acquire Common Stock ("Options").
Issuer: Cherokee, Inc.
300 Park Avenue, 17th Floor
New York, New York 10022
Item 2. Identity and Background
(a) Robert Margolis
(b) 6835 Valjean Avenue
Van Nuys, California 91406
(c) President
Cherokee Inc.
6835 Valjean Avenue
Van Nuys, California 91406
(d) The reporting person has not, during the past five
years, been convicted in a criminal proceeding
(excluding traffic violations or similar
misdemeanors).
(e) The reporting person has not, during the past five
years, been a party to a civil proceeding of a
<PAGE> 4
CUSIP No. 16444H102 Page 4 of 5 Pages
judicial or administrative body of competent jurisdiction and
as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations
of, or prohibiting or mandating activities subject to federal
or state securities laws or finding any violation with respect
to such laws.
(f) United States of America
Item 3. Source and Amount of Funds or Other Consideration.
Mr. Margolis used no funds in the acquisition by Newstar of
the securities reported herein. This report is being provided
solely to report the acquisition by Newstar of 28.3% of the
Issuers Common Stock and options to acquire shares of the
Issuer's Common Stock.
Item 4. Purpose of Transaction.
The acquisition of shares of Common Stock and the Options by
Newstar relates to the exercise by Newstar of an option to
acquire shares related to a Management Agreement entered into
by Newstar in May 1995.
Item 5. Interest in Securities of the Issuer
(a) The number of shares of Common Stock beneficially
owned by the Undersigned Reporting Person is as
follows:
<TABLE>
<CAPTION>
Number of Percent
Name of Reporting Person Shares(1) of Class(1)
-------------------------------------------- ----------------- --------
<S> <C> <C>
Robert Margolis 2,445,026 29.44
</TABLE>
(1) The number of shares includes 319,840 owned
individually by Mr. Margolis and 2,125,186 owned by
Newstar in which he has a beneficial interest by
virtue of his majority ownership of Newstar. The
number of shares reported herein reflects 1,674,739
shares of Common Stock acquired by Newstar and
450,447 Options, which Options are exercisable within
sixty (60) days of the date hereof.
Item 6. Contracts, Arrangements, Understandings or Relationships With
Respect to Securities of the Issuer.
None.
<PAGE> 5
CUSIP No. 16444H102 Page 5 of 5 Pages
Item 7. Material to be Filed as Exhibits.
(a) The May 4, 1995 Revised Management Agreement between
Newstar and the Issuer, as amended on March 23, 1996,
is attached as Exhibit "99.A."
(b) The May 4, 1995 Revised Option Agreement between
Newstar and Issuer, as amended on March 23, 1996, is
attached as Exhibit "99.B."
Signatures
After reasonable inquiry and to the best of our knowledge and
belief, we certify that the information set forth in this statement is true,
complete and correct.
Dated: July 17, 1996
/s/ Robert Margolis
--------------------------------------
Robert Margolis
<PAGE> 1
Exhibit 99.A
EXECUTION VERSION
REVISED AND RESTATED MANAGEMENT AGREEMENT
This Revised and Restated Management Agreement ("Agreement") is entered
into as of the 4th day of May, 1995, by and between The Newstar Group, a
California corporation d/b/a The Wilstar Group ("Wilstar") and Cherokee Inc., a
Delaware corporation (THE "Company").
WHEREAS, the Board of Directors of the Company believes it to be in the
Company's best interest to immediately engage the management services of
Wilstar, which will provide the services of Robert Margolis ("Margolis"),
pursuant to the terms of this Agreement and Wilstar desires to accept such
engagement;
WHEREAS, on May 4, 1995, the Company and Wilstar entered into an
agreement and a side letter (collectively the "Prior Agreement") regarding the
subject matter hereof and now wish to replace the Prior Agreement, in its
entirety, with this Agreement which shall be effective as of the date of the
Prior Agreement;
WHEREAS, subject to the terms and conditions set forth herein, the
Company and Wilstar wish to set forth their understanding regarding the mutual
rights, obligations and responsibilities of Wilstar and the Company in
connection with Wilstar's management of the Company; and
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and Wilstar agree as follows:
Section 1. Term.
1.1 Initial Term. Except as provided in Sections 1.2 and 9
below, the term of this Agreement shall commence as of the date hereof and shall
terminate on May 31, 1998.
1.2 Extended Term. In the event the Company's consolidated "pre-tax
earnings" computed in accordance with generally accepted accounting principals
("GAAP")(the "Pre-Tax Earnings"), as set forth in the Company's audited
financial statements for any of the Company's fiscal years during the term
hereof (the "Financial Statements"), commencing with the fiscal year ended May
31, 1996, are no less than 80% of the Pre-Tax Earnings contained in the budget
submitted to and approved by the Board of Directors and by Margolis for such
fiscal year (the "Budgeted Earnings"); the termination date of this Agreement
will automatically be extended an additional year. For the purposes hereof
"Term" shall refer to the Initial Term and the Extended Term, if applicable.
<PAGE> 2
Section 2. Management Services.
2.1 General Responsibilities. Subject to the supervision of the Board
of Directors of the Company, Wilstar shall provide the services of Margolis as
the Company's Chairman of the Board and Chief Executive Officer ("CEO"). Wilstar
represents and warrants that it shall be able to deliver Margolis' services as
contemplated hereby and that it shall be able to have Margolis agree to be bound
by the terms of this Agreement.
2.2 Management Titles. As of the effective date of this Agreement, the
Board of Directors of the Company shall appoint Robert Margolis, Chairman of the
Board and CEO with all the powers and authorities as are customarily vested in
the chairman of the board and the chief executive officer of a company.
Section 3. Management Compensation, As compensation for its services
rendered under this Agreement, the Company shall compensate Wilstar as follows:
3.1 Base Compensation. As its base compensation for services rendered
hereunder for the term hereof, Wilstar shall receive four hundred thousand
dollars ($400,000) per annum from the Company (the "Base Compensation"). Wilstar
shall be paid its Base Compensation monthly, in arrears on the last business day
of the month.
3.2 Performance Bonus. Wilstar shall be entitled to performance bonuses
as described in this Section 3.2. If no Uniform Sale (as defined below) occurs,
Wilstar shall receive a Performance Bonus equal to ten percent (10%) of the
Pre-Tax Earnings in excess of a threshold amount of three million five hundred
thousand dollars ($3,500,000) for the fiscal years ended May 31, 1996, 1997 and
1998. If a Uniform Sale does occur, Wilstar shall receive a Performance Bonus
equal to ten percent (10%) of the Pre-Tax Earnings in excess of an adjusted
threshold amount of two million five hundred thousand dollars ($2,500,000) for
the fiscal years ended May 31, 1996, 1997 and 1998. If a Uniform Sale occurs
during any of the above-referenced fiscal years, the bonus threshold shall be
prorated between the threshold amount and the adjusted threshold amount. The
Performance Bonus shall be paid in full no later than five (5) business days
after the issuance of the Financial Statements for each of such fiscal years or
if no audited Financial Statements are issued, no later than ninety (90) days
after the end of any such fiscal year. For purposes of this Agreement, the term
"Uniform Sale" shall mean the sale of all or substantially all of the assets of
the Company's Uniform Division.
3.3 Wilstar Options. Wilstar shall receive on the date of this
Agreement options to purchase up to seven and one-half percent (7.5%) of the
Common Stock (as defined below) on a "fully diluted basis", which for the
purposes hereof shall be deemed to be (i) all
<PAGE> 3
currently issued and outstanding Common Stock; (ii) plus any shares of Common
Stock issuable and minus any shares of Common Stock that are cancelled pursuant
to the Prepackaged Plan (as defined below); and (iii) plus any shares of Common
Stock issuable or in connection with currently outstanding agreements
(collectively, the 'Diluted Common Stock") at an exercise price equal to three
dollars ($3.00) per share (the 'Wilstar Options"). The Wilstar Options will have
a five (5) year term from the date of grant, shall vest in one-third increments
with one-third vesting upon the execution hereof and one-third vesting on each
of the first two anniversaries of this Agreement. A Wilstar Option Agreement
embodying the terms and conditions of the Wilstar Options set forth in this
Section 3.3 and such other terms and conditions as may be mutually agreed shall
be executed concurrently with this Agreement. The shares issued pursuant to the
Wilstar Options shall be subject to a Registration Rights Agreement pursuant to
which the Company shall agree to grant Wilstar "piggy back" registration rights
to include all or such portion of the Common Stock issuable upon the exercise of
the Wilstar Options in any Form S-8, S-3, S-1 or other Registration Statement
filed by the Company with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"), (i) so long as Wilstar would be
deemed to be an "affiliate" as such term is defined in the Act; or (ii) Wilstar
owns "restricted shares" of Common Stock as such term is defined in the Act
(which restricted shares have not satisfied the holding period required for
sales under Rule 144 of the Act (the "Holding Period")); or (iii) after
expiration of the Holding Period, if such "restricted shares" are in an amount
in excess of the volume limitations under Rule 144 of the Act (collectively, the
"Restriction Period"). In addition, the Registration Rights Agreement shall
provide that Wilstar shall have a one time "demand" registration right prior to
the expiration of the Restriction Period. Such Registration Rights Agreement
shall be executed concurrently with this Agreement. For purposes of this
Agreement, the term "Prepackaged Plan" refers to that certain pre-packaged
Chapter 11 plan of reorganization as confirmed by the Bankruptcy Court on
December 14, 1994 and the term "Common Stock" refers to all stock issued or
issuable by the Company to the Company's creditors and/or stockholders pursuant
to the Prepackaged Plan.
3.4 Performance Options. Wilstar shall receive on the date of this
Agreement options to purchase up to twenty-two and one-half percent (22.5%) of
the Diluted Common Stock for an exercise price of two cents ($,02) per share
(the "Performance Options"). The Performance Options shall have a five (5) year
term commencing from the date of grant and shall vest and be exercisable as
follows:
(a) If a Uniform Sale does not occur:
CUMULATIVE
PERCENTAGE OF DILUTED
COMMON STOCK EXERCISABLE EQUITY VALUE OF THE COMPANY
<PAGE> 4
<TABLE>
<S> <C>
7.50% EQUAL TO OR GREATER THAN $40,000,000
7.50% EQUAL TO OR GREATER THAN $60,000,000
5.00% EQUAL TO OR GREATER THAN $80,000,000
2.50% EQUAL TO OR GREATER THAN $100,000,000
- ----
22.50%
</TABLE>
(b) If a Uniform Sale occurs:
CUMULATIVE
PERCENTAGE OF DILUTED
COMMON STOCK EXERCISABLE EQUITY VALUE OF THE COMPANY
<TABLE>
<CAPTION>
<S> <C>
7.50% EQUAL TO OR GREATER THAN $32,500,000
7.50% EQUAL TO OR GREATER THAN $52,500,000
5.00% EQUAL TO OR GREATER THAN $72,500,000
2.50% EQUAL TO OR GREATER THAN $92,500,000
- ----
22.50%
</TABLE>
For the purposes of this Agreement, the "Equity Value" of the Company shall be
computed as the product of the average closing trading price of the Common Stock
for any ninety (90) day period during the term hereof multiplied by the weighted
average number of outstanding shares of Common Stock during such period. If a
Uniform Sale occurs during such ninety (90) day period, then the Equity Values
at which the Performance Options shall vest and be exercisable shall be prorated
between the Equity Values set forth in subsection (a) above and the Equity
Values set forth in subsection (b) above. For the purposes hereof Wilstar shall
be deemed to have earned and shall be fully vested in Performance Options in the
percentages of the Diluted Common Stork set forth above in the event it
achieves, at any time prior the termination of the Term of this Agreement, the
aforementioned computation of "Equity Value". To the extent that Wilstar does
not achieve one or more of the appropriate Equity Values set for the above on or
prior the termination of the Term of this Agreement, the unvested Performance
Options shall expire and shall no longer be exercisable. The Wilstar Option
Agreement shall, in addition to the terms and conditions of the Wilstar Option
contain the terms and conditions of the Performance Options set forth in this
Section 3.4 and such other terms and conditions as may be mutually agreed shall
be executed concurrently. The shares issued pursuant to the Performance Options
shall be subject to the Registration Rights Agreement described in Section 3.3
above.
Section 4. Board of Directors of the Company.
4.1 Composition of the Board. The Company agrees that it shall use its
best efforts to ensure that during the term of this Agreement the Board of
Directors consists of either seven or nine directors. If there are seven
directors, the Company shall use its best efforts to ensure (i) that one (1)
director is nominated by Wilstar (the "Wilstar Director") (the initial Wilstar
Director
<PAGE> 5
shall be Margolis); (ii) that two (2) directors (the "Investor Directors") are
nominated by Douglas Weitman, Jess Ravich and the other members of the group,
other than Margolis, that filed Schedule 13-Ds, dated April 24, 1995, with
respect to the to the purchase of Common Stock of the Company (collectively, the
"Outside Investors") (the initial Investor Directors shall be Douglas Weitman
and Jess Ravich); and (iii) that four (4) directors are nominated by the
non-Wilstar non-Investor Directors (the "Other Directors"). If there are nine
directors, the Company shall use its best efforts to ensure that, in addition to
the Wilstar Director and the Investor Directors described above, (a) one (1)
director is nominated by Wilstar and the Outside Investors together (the
"Wilstar/Investor Director") (the initial Wilstar/Investor Director shall be
Keith Hull); and (b) five (5) directors are nominated by the Other Directors. If
the Board of Directors is expanded, the Company shall use its best efforts to
ensure that Wilstar is able to maintain its proportionate representation. During
the term of this Agreement, the Company shall use its best efforts to ensure
that the Board shall have such committees as it deems appropriate, but in any
event shall have audit and compensation committees, each of which shall be
comprised of three members, one of whom shall an Investor Director and two of
whom shall be selected by the entire Board of Directors from all of the
remaining Directors (other than the Wilstar Director). During the term hereof,
if (x) the size of the Board of Directors is increased or decreased without
Wilstar's maintaining (or increasing) its proportionate representation; (y) the
Wilstar Director, the Investor Directors and/or the Wilstar/Investor Director
is/are not elected to the Board or are not put on the slate of Directors
recommended to the Company's shareholders or any such Director is removed from
the Board without Wilstar's prior approval; or (z) Robert Margolis is not
elected Chairman of the Board (without Wilstar's consent), then, Wilstar may
elect to treat such events as a breach of this Agreement subject to the terms of
Sections 9 and 10 below.
4.2 Board of Directors' Oversight. Wilstar agrees that the Board of
Directors shall have approval rights of the Company's (i) budget, (ii) business
plan, (iii) capital expenditures (in excess of $25,000 per quarter), (iv)
purchases of any businesses or material assets (outside of the ordinary course
of business), (v) sales of any of the Company's businesses, divisions or
material assets (other than inventory and outside of the ordinary course of
business), and (vi) hires of any employees with base salaries (including any
contractually promised bonuses) in excess of $100,000 per annum. Within 90 days
after the date of this Agreement, Margolis shall present to the Board of
Directors a revised business plan for the Company. Thereafter, Margolis shall
present further revised business plans within 15 days after any requests from
the Board of Directors.
Section 5. Other Activities of Wilstar, Conflict of Interest.
<PAGE> 6
Each party hereby acknowledges and agrees that during the term of this Agreement
Margolis shall devote substantially all of his business time to the Company's
affairs; provided, however, that the services rendered to the Company by Wilstar
and Margolis pursuant to this Agreement shall not be exclusive and that nothing
contained herein shall preclude Margolis from devoting time to other business
endeavors including endeavors of Wilstar and other endeavors each as described
below. Each party agrees that Wilstar and/or Margolis may continue to engage in
outside business activities, including the business activities set forth in
Exhibit A hereto, that relate to the manufacturing, marketing, licensing, sale
and distribution of casual apparel. Wilstar and Margolis shall exercise such
rights to engage in outside business activities through their ownership of, or
investment in, apparel related enterprises. ne aforementioned activities by
Margolis shall not constitute a breach or violation of this Agreement so long as
they do not unduly conflict or interfere with the satisfactory performance of
Margolis' obligations to the Company pursuant to the terms of this Agreement.
Section 6. Facilities and Reimbursement of Expenses. Margolis shall be
provided, at no expense to Wilstar, with offices, secretarial and administrative
support, telephones, etc. at the Company's principal executive offices which
shall be located in the greater Los Angeles metropolitan area. In addition,
Wilstar shall be reimbursed for any and all reasonable business and
administrative expenses it incurs on the Company's behalf (including travel,
airfare, hotel and other expenses for out-of-town travel) within 30 days after
the Company's receipt of appropriate documentation detailing such expenses;
provided, however, that such expenses shall be reviewed for their reasonableness
and propriety (the "Expense Review") by the Company's Chief Operating Officer
(or, if the Company has no Chief Operating Officer, its Chief Financial Officer)
and a committee of the disinterested members of the Board of Directors,
including at least one Investor Director, selected by the entire Board from the
Other Directors, the Investor Directors and, if applicable, the Wilstar/Investor
Director. The Expense Review shall also allocate, if necessary, the expenses
between expenses attributable to Wilstar's activities on the Company's behalf
(which will be reimbursed) and those expenses attributable to Wilstar's
activities on behalf of any other persons or entities (which will not be
reimbursed). The Expense Review shall be final and binding on Wilstar.
Section 7. Insurance. The Company shall and hereby covenants to, at its
own expense during the term hereof: (i) maintain directors and officers
liability ("D&O') insurance policies covering Margolis, with coverage and
amounts as determined by the Board of Directors of the Company; and (ii) provide
or reimburse Margolis for health and disability insurance in amounts comparable
to those afforded to other officers and executives of similar
<PAGE> 7
companies or similarly situated officers of the Company, if
applicable.
Section 8. Indemnification. The Company shall indemnify and hold
Margolis and Wilstar and its directors, officers, employees, agents, attorneys,
representatives, and controlling persons, (collectively, the "Indemnified
Parties") harmless from and against all claims or actions of, or demands, suits
or proceedings by any third party, and damages, losses and expenses (including
reasonable attorneys' fees) in connection therewith, arising out of this
Agreement and the performance by Wilstar of its responsibilities hereunder;
provided, however, such indemnity shall not apply to any such claim, action,
demand, suit, proceeding, damage, loss or expense of any Indemnified Party to
the extent it is found in a final judgment by a court of competent jurisdiction
(not subject to further appeal) to have resulted primarily from the gross
negligence or willful misconduct of such Indemnified Party. An Indemnified Party
shall give prompt written notice if any claim, charge, action or proceeding
("Indemnity Claim") shall be asserted or commenced which, if successful, could
give rise to a claim for indemnification hereunder. Upon notice of any such
Indemnity Claim the Company shall, at its own expense, resist and dispose of
such claim in such manner as it deems appropriate. The Company shall not, except
with the prior written consent of the Indemnified Party, consent to entry of any
judgment or enter into any settlement which requires the payment of money by or
imposes any obligations upon the Indemnified Party or which does not include as
an unconditional term, the release of the Indemnified Party (and its officers,
directors, employees and agents) by the claimant or plaintiff from any liability
in respect to such claim or the defense thereof. The foregoing indemnification
obligation shall be in addition to any other liability which the Company may
have to the Indemnified Parties under the Certificate of Incorporation of the
Company or its By-Laws. No Indemnified Party shall settle any claim, demand,
action, suit or proceeding without the consent of the Company, which consent
shall not be unreasonably withheld.
Section 9. Events of Termination. This Agreement shall be subject to
termination prior to the term set forth in Section 1 upon the occurrence of any
of the following:
9.1 Minimum Pre-Tax Earnings Levels. The Board of Directors (with the
Wilstar Directors abstaining) of the Company may in its sole discretion
terminate this Agreement by written notice to Wilstar no later than forty-five
(45) days after the release of the Financial Statements for the fiscal years
ended May 31, 1996 or 1997, if the Pre-Tax Earnings set forth in such Financial
Statements are less than 80% of the Bugeted Earnings for such fiscal year.
9.2 Breach of the Agreement. Wilstar may terminate this Agreement in
the event the Company materially breaches any of the
<PAGE> 8
terms and conditions hereof or fails to perform its material obligations
hereunder. For the purposes hereof, notwithstanding the terms of this Agreement,
unless initiated by Wilstar and/or Margolis, the occurrence, without the express
written consent of Wilstar, Margolis or his designee, of any of the following
shall be deemed to be a material breach of this Agreement:
(a) The assignment to Margolis of any duties materially inconsistent
with, or the diminution of Margolis' positions, titles, offices, duties and
responsibilities with the Company, as in effect from time to time hereunder or
any removal of Margolis from, or any failure to re-elect Margolis to, any
titles, offices or positions held by Margolis hereunder, including the failure
of the Board of Directors to elect Margolis or Wilstar's designee as Chairman of
the Board during the term of this Agreement or the failure to elect, or the
removal of, any Wilstar and/or Outside Investor nominee as Director from the
slate of directors recommended to the Company's stockholders by the Board of
Directors;
(b) Except as in accordance with the terms hereof, a reduction by the
Company in the Base Compensation or any other compensation provided for herein;
(c) The failure by the Company to continue in effect any material
benefit or compensation plan to which Wilstar is entitled, hereunder, or plans
providing Wilstar with substantially similar benefits, the taking of any action
by the Company which would materially and adversely affect Wilstar's
participation in, or materially reduce Wilstar's benefits under, any such
benefit plan or deprive Margolis any material fringe benefits enjoyed by him
pursuant to the terms hereof,
(d) A change or relocation of Margolis' offices at the Company that
materially and adversely affects Margolis' working environment;
(e) Any other substantial, material and adverse changes in Margolis's
working conditions at the Company imposed by the Company; or
(f) A breach by the Company of the Wilstar Option agreement or the
Performance Option agreement.
Upon the occurrence of any of the aforementioned items (a) through (f) above
Wilstar may upon ten (10) days prior written notice, during which the Company
may cure its breaches, terminate this Agreement unless it determines in good
faith that such cure would be impossible in which case termination shall be
effective upon such notice.
9.3 Without Cause. The Board of Directors may terminate this
<PAGE> 9
Agreement at any time without cause;
9.4 For Cause. The Board of Directors may terminate this Agreement at
any time "for cause". For the purposes hereof "for cause" shall be limited to
the willful misfeasance or gross negligence on the part of Wilstar or Margolis
in connection with the performance of their duties pursuant to this Agreement
which willful misfeasance and/or gross negligence shall directly cause material
harm to the assets, business or operations of the Company; provided, however,
prior to the termination of Wilstar as a result of the willful misfeasance or
gross negligence of Wilstar or Margolis, the Board of Directors shall notify
Wilstar and Margolis in writing of such acts of willful misfeasance or gross
negligence and allow Wilstar and/or Margolis a period of not less than twenty
(20) business days to cure such acts, provided further, that if the Board of
Directors determines in good faith that the Company has already suffered
material and irreparable harm or will suffer such material or irreparable harm
in the event Wilstar is allowed such cure period, such termination will be
effective immediately upon notice.
9.5 Death or Disability. This Agreement shall terminate immediately
upon Margolis' death. In addition, upon the failure of Wilstar, during the Term,
to render services to the Company for a substantially continuous period of six
(6) months, because of Margolis' physical or mental disability during such
period, the Company, acting through its Board of Directors or a committee of its
Board of Directors including at least one Investor Director to which such
authority has been delegated, may terminate Wilstar's employment with the
Company. If there should be any dispute between the parties as to Margolis'
physical or mental disability at any time, such question shall be settled by the
opinion of an impartial reputable physician agreed upon for the purpose by the
parties or their representatives, or failing agreement within ten (10) days of a
written request therefor by either party to the other, then one designated by
the then president of the Los Angeles Medical Society. The certificate of such
physician as to the matter in dispute shall be final and binding on the parties
Section 10. Compensation to Wilstar in the Event of Early Termination
of the Agreement. In the event the Agreement is terminated pursuant to Section 9
above, Wilstar shall be entitled to the following compensation and payments:
10.1 Minimum Payments. In all events Base Compensation pursuant to
Section 3.1 through the date of termination, reimbursement for all expenses
pursuant to Section 6 to the date of termination and ongoing indemnification
pursuant to Section 8 above. Wilstar shall be entitled to any unpaid Performance
Bonus pursuant to Section 3.2 (pro-rated for the last fiscal year if the
termination occurs prior to May 31st of such fiscal year). Wilstar shall also be
entitled to exercise within ninety (90) days after
<PAGE> 10
such termination any vested Wilstar Options or Performance Options. All unvested
Wilstar Options and Performance Options shall terminate on the date of
termination. In addition, Margolis shall be entitled to comparable ongoing
insurance coverage pursuant to Section 7 as may he available to other terminated
officers, employees or directors of the Company;
10.2 Breach by the Company or at the Company's Will. In addition to the
payments pursuant to Section 10. 1 above, in the event of a termination pursuant
to Sections 9.2 or 9.3 above, Wilstar shall be entitled to the immediate payment
of all Base Compensation for the remainder of the term of the Agreement and all
Performance Bonuses for the remainder of the term of this Agreement as though
such termination had not occurred, and the immediate vesting of all of the
unvested Wilstar Options and Performance Options which shall remain exercisable
through the balance of their five year term.
Section 11. No Actions. Except as specifically contemplated hereby,
during the term of this Agreement, the Company and its Board of Directors shall
not enter into or authorize any contracts, or take any other actions which would
be inconsistent or interfere with, modify or supersede the management
responsibilities delegated to Wilstar under this Agreement or otherwise impair
or interfere with Wilstar's ability to manage the operations of the Company in
accordance with the terms hereof. In addition, the Company's Board of Directors
shall as soon as practical advise Wilstar of those employees covered by existing
employment agreements. Wilstar and Margolis agree that they shall comply with
the terms of such employment agreements so long as no such employment agreement,
other than that of Michael Seyhun, has a severance provision of greater than six
months.
Section 12. Sale of Common Stock held by Wilstar and/or Margolis.
Unless and until this Agreement is terminated prior to March 1, 1996, and except
in the event of a public offering of equity securities by the Company, neither
Margolis nor Wilstar shall sell any Common Stock prior to March 1, 1996 without
the prior written approval of the Company's Board of Directors, which approval
shall not be unreasonably withheld. Thereafter, each of Wilstar and Margolis
shall be free to sell Common Stock subject only to any restrictions and/or
limitations imposed by applicable securities laws.
Section 13. Miscellaneous Terms.
13.1 Jurisdiction. Each of the Company and Wilstar acknowledges and
agrees that the sole forum for commencing or pursuing any proceeding with
respect to disputes arising under or in connection with this Agreement, any
provisions hereunder, or any other document or instrument entered into or given
or made pursuant to this Agreement is, and each party irrevocably submits itself
to
<PAGE> 11
the personal jurisdiction of, the Superior Court for the County of Los Angeles.
All parties hereto consent and agree that such courts shall have sole original
jurisdiction over any matter arising under or in connection with this Agreement.
This consent to jurisdiction shall be self-operative and no further instrument
or action, other than service of process as provided in this Agreement and as
permitted by law, shall be necessary to confer jurisdiction upon the parties
hereto in such courts.
13.2 Service and Venue. Each of the Company and Wilstar expressly
covenants and agrees that service of process may be made, and personal
jurisdiction over said party obtained, by serving a copy of the Summons and
Complaint upon said party in accordance with the applicable laws and rules of
the pertinent court having jurisdiction over the case pursuant to section 13.1
above.
13.3 Notices. All notices, requests, demands and other communications
called for or contemplated hereunder shall be in writing and shall be deemed
duly given (i) when received; (ii) four (4) days after being sent by certified
or registered United States mail, postage prepaid, with return receipt
requested; or (iii) when received by wire or telecopy addressed to the parties
at the following addresses, or at such other addresses as the parties may
designate by written notice in the manner aforesaid:
If to the Company: Cherokee Inc.
6835 Valjean Avenue
Van Nuys, CA 91406
Attention: Chief Financial Officer
Fax: (818) 908-9191
If to Wilstar: The Wilstar Group
6835 Valjean Avenue
Van Nuys, CA 91406
Attention: Robert Margolis
Fax: (818) 908-9191
13.4 Modification; Waiver. No modification or waiver of any provision
of this Agreement or consent to departure therefrom shall be effective unless in
writing and approved by the parties hereto. There shall be no waiver of any of
the provisions of this Agreement unless in writing signed by the party against
which the waiver is sought to be enforced.
13.5 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California applicable
to agreements to be entered into and wholly performed within said state without
reference to the conflicts of law provisions thereof.
13.6 Construction of Agreement. The language in all parts of this
Agreement shall be in all cases construed simply according to
<PAGE> 12
its fair meaning and not strictly for or against any of the parties hereto.
Headings at the beginning of Sections, Subsections, paragraphs and subparagraphs
of this Agreement are solely for convenience of reference and shalt not
constitute a part of this Agreement for any other purpose. When required by the
context, whenever the singular number is used in this Agreement, the same shall
include the plural, and the plural shall include the singular, the masculine
gender shall include the feminine and neuter genders, and vice versa.
13.7 Relationship of Parties, Other Activities. The relationship of
Wilstar to the Company is one of an independent contractor and is purely
contractual and no officer or employee of Wilstar shall be deemed an employee of
the Company for any purpose whatsoever.
13.8 Exhibits and Schedules. All exhibits, schedules and other
attachments hereto are hereby incorporated herein by this reference.
13.9 Further Assurances. After the effective date of this Agreement,
each party agrees to execute any and all such further agreements, instruments or
documents, and to take any and all such further action, as may be necessary or
desirable to carry out the provisions hereof and to effectuate the purposes of
this Agreement.
13.10 Attorneys' Fees.
(a) The Company shall pay Wilstar up to an aggregate amount of one
hundred and twenty thousand dollars ($120,000) for reimbursement of its actually
incurred legal and accounting fees incurred through September 1, 1995 in
connection with this Agreement, the Prior Agreement and its investment in the
Company.
(b) In the event any action in law or equity or other proceeding is
brought for the enforcement of this Agreement or in connection with an
interpretation of the provisions of this Agreement, the Court shall award
reasonable attorneys' fees and other costs reasonably incurred in such action or
proceeding to the parties based on its judgment of the relative merits of their
respective claims.
13.11 Severability. Should any one or more of the provisions of this
Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.
13.12 Integration; Parties in Interest. This Agreement, together with
the Registration Rights Agreement and the Non-
<PAGE> 13
Qualified Stock Option Agreement both dated as of May 4, 1995, contains the
entire agreement of the parties with respect to the subject matter thereof and
supersedes all prior agreements between the parties, whether written or oral. No
party shall be liable or bound to any other party in any manner except as
specifically set forth in this Agreement. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether so
expressed or not. No party hereto shall have the right to assign this Agreement
without the prior written consent of the other party hereto; provided, however,
that so long as Margolis continues to serve the Company pursuant to this
Agreement, Wilstar may assign this Agreement to another entity that is a
successor to, or affiliated with, Wilstar.
13.13 Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all parties had signed the same
document. All such counterparts shall be deemed an original, shall be construed
together and shall constitute one and the same instrument. A facsimile copy of a
signed execution page shall constitute due execution of this Agreement and shall
binding upon the executing party.
[signature page follows]
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the first date hereinabove written.
CHEROKEE INC.
By:
Its:
NEWSTAR GROUP
By:
Robert Margolis
Its: Chief Executive Officer
<PAGE> 14
Exhibit A
[Outside Business Activities]
<PAGE> 15
AMENDMENT NO.1
TO THE
REVISED AND RESTATED MANAGEMENT AGREEMENT
THIS AMENDMENT NO.1 TO THE REVISED AND RESTATED MANAGEMENT
AGREEMENT (this "Amendment") is entered into by and between CHEROKEE INC., a
Delaware corporation ("Cherokee"), and THE NEWSTAR GROUP, a California
corporation doing business as The Wilstar Group ("Wilstar"), with reference to
the following facts:
A. Cherokee and Wilstar entered into a Revised and
Restated Management Agreement dated May 4, 1995 (the "Agreement").
B. The parties now desire to further amend the
Agreement on the terms and conditions contained herein.
The parties hereto hereby agree as follows:
1. Section 1.2 shall be amended to add the following
after "("GAAP")" on the third line thereof:
"after backing out the effect of any charges or
expenses which are incurred by the Company as a result of the "vesting" or
"exercise", as the case may be, of any Performance Options pursuant to Section
3.4 hereof"
2. Section 3.4 is deleted in its entirety and
replaced by the following Section 3.4:
"3.4 Performance Options. Wilstar received on May 4, 1995,
options to purchase up to 22.5% of Diluted Common Stock for an exercise price of
$0.02 per share (the "Performance Options"). The Performance Options have a term
of five years from May 4, 1995, and have certain vesting schedules. The
Performance Options are hereby amended as follows:
(a) They shall allow Wilstar to purchase up to a
maximum of 20% of Diluted Common Stock;
(b) The right to purchase all of the shares of
Common Stock issuable upon the exercise of the Performance Options or an
aggregate of 20% of Diluted Common Stock shall vest as follows:
(i) with respect to the initial 15% of
the Diluted Common Stock, on March 26, 1996; and
<PAGE> 16
(ii) with respect to the balance of 5% of
the Diluted Common Stock, on April 24, 1996.
(c) Notwithstanding anything to the contrary
contained herein, the parties hereto agree that in the event: (x) the Company
declares any dividend of cash or property or otherwise declares any payment to
the holders of its Common Stock (the "Distribution"), (y) Wilstar or its
assignee has exercised the Performance Options for an amount which in the
aggregate is greater than fifteen (15%) of the Diluted Common Stock (the
"Additional Shares") so that the Additional Shares would be entitled to such
Distribution, and (z) the declaration of such Distribution is prior to the
occurrence of either of the following: (i) thirty (30) consecutive trading days
during which time the closing price of the Common Stock is no less than $7.60
per share; or (ii) May 31, 1997; then and in such event Wilstar agrees that it
or any subsequent holder of the Additional Shares shall not be entitled to and
shall forfeit any and all rights to the Distribution solely with respect to
Additional Shares (the "Forfeiture"). In connection with the Forfeiture, Wilstar
further agrees as follows:
(i) until the occurrence of either
of the events set forth in (z) above all share certificates issued in connection
with the Additional Shares shall, in addition to such other legends that may be
required, contain the following legend:
"PURSUANT TO AMENDMENT 1. TO THE REVISED AND RESTATED
MANAGEMENT AGREEMENT BY AND BETWEEN THE COMPANY AND THE
NEWSTAR GROUP D/B/A THE WILSTAR GROUP, THE HOLDER OF THE
SHARES REPRESENTED BY THIS CERTIFICATE HAS IRREVOCABLY AGREED
TO WAIVE AND FORFEIT ANY AND ALL RIGHTS IN AND TO ANY DIVIDEND
OF CASH OR PROPERTY OR OTHER PAYMENT WITH RESPECT TO THESE
SHARES WHICH IS DECLARED BY THE COMPANY PRIOR TO THE
OCCURRENCE OF EITHER OF THE FOLLOWING EVENTS: (I) THIRTY (30)
CONSECUTIVE TRADING DAYS DURING WHICH TIME THE CLOSING PRICE
OF THE COMPANY'S COMMON STOCK IS EQUAL TO OR GREATER THAN
$7.60 PER SHARE; OR (II) MAY 31, 1997."
(ii) Wilstar agrees that in the event
any of the Additional Shares are sold, transferred, hypothecated, pledged or
assigned by it to another holder (the "Transfer") prior to the occurrence of
either of the events set forth in (z) above, that, as a precondition of such
Transfer that the transferee acknowledge and agree to the Forfeiture as set
forth herein; and
-2-
<PAGE> 17
(iii) that Wilstar and any subsequent
holder of the Additional Shares hereby agrees to indemnify and hold harmless the
Company from any and all claims, damages, losses, judgments and costs (including
attorneys' fees) incurred by the Company in connection with or relating to any
claim arising out of or relating to the Forfeiture asserted by any subsequent
holder of Additional Shares.
The Wilstar Option Agreement, which has been executed, shall be amended to
reflect the changes to the Performance Options contained herein. The shares
issued pursuant to the Performance Options shall be subject to the Registration
Rights Agreement described in Section 3.3 above."
3. Except as amended hereby, the Agreement remains
unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
No. 1 on the dates set forth below.
CHEROKEE INC.
Dated:___________________ By:___________________________
Name:______________________
Title:_____________________
THE NEWSTAR GROUP,
a California corporation
d/b/a The Wilstar Group
Dated:___________________ By_____________________________
Name:________________________
Title:_______________________
-3-
<PAGE> 1
Exhibit 99.B
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this "Agreement),
dated as of May 4, 1995, is made by and between Cherokee Inc., a Delaware
corporation (the "Company"), and The Newstar Group, a California corporation
d/b/a The Wilstar Group ("Optionee").
RECITALS
A. The Company wishes to afford Optionee the opportunity
to purchase shares of its $0.02 par value Common Stock.
B. The Company wishes to carry out the Plan (as defined
below) the terms of which are hereby incorporated by reference and made a part
of this Agreement.
C. The Committee (as defined below), appointed to
administer the Plan, has determined that it would be to the advantage and best
interest of the Company and its shareholders to grant the Options provided for
herein to Optionee as an inducement to enter into or remain in the service of
the Company and as an incentive for increased efforts during such service, and
has advised the Company thereof and instructed the undersigned officers to issue
said Options.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
1. Definitions. Whenever the following terms are
used in this Agreement, they shall have the meaning specified
below unless the context clearly indicates to the contrary. The
masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
1.1 Board. "Board" shall mean the Board of
Directors of the Company.
1.2 Committee. "Committee" shall mean the
Stock Option Committee of the Board, appointed as provided in the Plan.
1.3 Common Stock. "Common Stock" means the
Company's $0.02 par value Common Stock.
<PAGE> 2
1.4 Company. "Company" shall mean Cherokee
Inc., a Delaware corporation.
1.5 Diluted Common Stock. "Diluted Common
Stock" means the aggregate of (i) all currently issued and outstanding shares of
Common Stock; (ii) plus any shares of Common Stock that arc issuable and minus
any shares of Common Stock that are cancelled pursuant to the Prepackaged Plan;
and (iii) plus all other shares of Common Stock issuable or in connection with
currently outstanding agreements.
1.6 Director. "Director" shall mean a member
of the Board.
1.7 Equity Value. "Equity Value" shall be the
equity value of the Company and shall be computed as the product of the average
closing trading price of the Common Stock for any ninety (90) day period during
the term of the Management Agreement multiplied by the weighted average number
of outstanding shares of Common Stock during such period. If a Uniform Sale
occurs during such ninety (90) day period, then the Equity Values at which the
Performance Option shall vest and be exercisable shall be prorated as set forth
in Section 3.3 hereof.
1.8 Exchange Act. "Exchange Act" shall mean
the Securities Exchange Act of 1934, as amended.
1.9 Management Agreement. "Management
Agreement" shall mean that certain Management Agreement, dated as of May 4,
1995, between the Company and Optionee, as it may be amended from time to time.
1.10 Margolis. "Margolis" shall mean Robert
Margolis, an individual.
1.11 Officer. "Officer" shall mean an officer
of the Company, as defined in Rule 16a-1(f) under the Exchange Act, as such Rule
may be amended in the future.
1.12 Options. "Options" shall mean the Wilstar
Option and the Performance Option together.
1.13 Prepackaged Plan. "Prepackaged Plan" means
that certain prepackaged Chapter 11 plan of reorganization that relates to the
Company, as confirmed by the Bankruptcy Court on December 14, 1994.
1.14 Plan. "Plan" shall mean any Stock Option
Plan subsequently adopted for employees of Cherokee Inc.
1.15 Performance Option. "Performance Option"
shall mean the non-qualified option to purchase Common Stock of the Company
granted under this Agreement as specifically described in Sections 2.3, 2.4, 3.3
and 3.4 of this Agreement.
-2-
<PAGE> 3
1.16 Rule 16b-3. "Rule 16b-3" shall mean that
certain Rule 16b-3 under the Exchange Act, as such Rule may be
amended in the future.
1.17 Secretary. "Secretary" shall mean the
Secretary of the Company.
1.18 Securities Act. "Securities Act" shall
mean the Securities Act of 1933, as amended.
1.19 Termination of Employment. "Termination of
Employment" shall mean the time when the employee-employer relationship between
Margolis and the Company is terminated for any reason, with or without cause,
including, without limitation, a termination by resignation, discharge, death or
retirement, but excluding any termination where there is a simultaneous
reemployment by the Company, or one of its affiliates.
1.20 Uniform Sale. "Uniform Sale" shall mean
the sale of all or substantially all of the assets of the Company's Uniform
Division.
1.21 Wilstar Option. "Wilstar Option" shall
mean the non-qualified option to purchase Common Stock of the Company granted
under this Agreement as specifically described in Sections 2.1. 2.2, 3.1 and 3.2
of this Agreement.
ARTICLE II
GRANT OF OPTIONS
2. Grant of Options. For good and valuable consideration the
receipt of which is hereby acknowledged, on the date hereof the Company
irrevocably grants to Optionee, subject to the terms of this Agreement, the
Wilstar Option and the Performance Option, each subject to the terms and
conditions of this Agreement.
2.1 Wilstar Option. Under the Wilstar Option,
Optionee shall have the option to purchase any part or all of an aggregate of up
to 7 1/2% of the Diluted Common Stock upon the terms and conditions set forth in
this Agreement.
2.2 Wilstar Option Purchase Price. The
purchase price of the Common Stock covered by the Wilstar Option shall be $3.00
per share without commission or other charge.
2.3 Performance Option. Under the Performance
Option, Optionee shall, upon the occurrence of certain conditions, have the
option to purchase any part or all of an aggregate of up to 22 1/2% of the
Diluted Common Stock upon the terms and conditions set forth in this Agreement.
-3-
<PAGE> 4
2.4 Performance Option Purchase Price. The
purchase price of the shares Diluted Common Stock covered by the Performance
Option shall be $0.02 per share without commission or other charge.
2.5 Employment Rights. Nothing in this
Agreement shall confer upon Margolis any right to continue in the employ of the
Company or shall interfere with or restrict in any way the rights of the
Company, which are hereby expressly reserved, to discharge Margolis as set forth
in the Management Agreement.
2.6 Adjustments in Options. In the event that
the outstanding shares of the stock subject to the Options are changed into or
exchanged for a different number or kind of shares of the Company or other
securities of the Company by reason of merger, consolidation, recapitalization,
reclassification, stock split up, stock dividend or combination of shares, the
Committee shall make an appropriate and equitable adjustment in the number and
kind of shares as to which the Options, or portions thereof then unexercised,
shall be exercisable, to the end that after such event Optionee's proportionate
interest shall be maintained as before the occurrence of such event. Such
adjustment in the Options shall be made without change in the total price
applicable to the unexercised portion of the Options (except for any change in
the aggregate price resulting from rounding-off of share quantities or prices)
and with any necessary corresponding adjustment in the Options' price per share.
ARTICLE III
PERIOD OF EXERCISABILITY
3. Commencement of Exercisability. The Options shall
become exercisable as set forth in this Article III.
3.1 Wilstar Option. The Wilstar Option shall
become exercisable in three (3) cumulative installments as
follows:
(a) The first installment shall
consist of 33 1/3% of the shares covered by the Wilstar Option and shall become
exercisable on the date of this Agreement.
(b) The second installment shall
consist of 33 1/3% of the shares covered by the Wilstar Option and shall become
exercisable on the first anniversary of the date of this Agreement.
(c) The third installment shall
consist of 33 1/3% of the shares covered by the Wilstar Option and shall become
exercisable on the second anniversary of the date of this Agreement.
-4-
<PAGE> 5
Except as provided in Sections 3.6, 3.7 and 3.8 hereof, no portion of the
Wilstar Option that is unexercisable at Termination of Employment shall
thereafter become exercisable.
3.2 Wilstar Option Duration of Exercisability.
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.5.
3.3 Performance Option. The Performance Option
shall vest and be exercisable as follows:
(a) If a Uniform Sale does not occur:
<TABLE>
<CAPTION>
CUMULATIVE
PERCENTAGE OF DILUTED
COMMON STOCK EXERCISABLE EQUITY VALUE OF THE COMPANY
------------------------ ---------------------------
<S> <C>
7 1/2% EQUAL TO OR GREATER THAN $40,000,000
7 1/2% EQUAL TO OR GREATER THAN $60,000,000
5.00% EQUAL TO OR GREATER THAN $80,000,000
2 1/2% EQUAL TO OR GREATER THAN $100,000,000
------
22 1/2%
</TABLE>
(b) If a Uniform Sale occurs:
<TABLE>
<CAPTION>
CUMULATIVE
PERCENTAGE OF DILUTED
COMMON STOCK EXERCISABLE EQUITY VALUE OF THE COMPANY
------------------------ ---------------------------
<S> <C>
7 1/2% EQUAL TO OR GREATER THAN $32,500,000
7 1/2% EQUAL TO OR GREATER THAN $52,500,000
5.00% EQUAL TO OR GREATER THAN $72,500,000
2 1/2% EQUAL TO OR GREATER THAN $92,500,000
------
22 1/2%
</TABLE>
If a Uniform Sale occurs during the ninety (90) day period during which the
Equity Value of the Company is determined, then the Equity Values at which the
Performance Option shall vest and be exercisable shall be prorated between the
Equity Values set forth in subsection (a) above and the Equity Values set forth
in subsection (b) above.
Except as provided in Sections 3.6, 3.7 and 3.8 hereof, no portion of the
Performance Option that is unexercisable at Termination of Employment shall
thereafter become exercisable.
-5-
<PAGE> 6
3.4 Performance Option Duration of
Exercisability. For the purposes of this Agreement, Optionee shall be deemed to
have earned and shall be fully exercisable in Performance Option in the
percentages of the Diluted Common Stock set forth above in the event it achieves
at any time prior to Termination of Employment the above-referenced Equity Value
thresholds. To the extent that Optionee does not achieve one or more of the
appropriate Equity Values set for the above on or before Termination of
Employment, the unexercisable portion of the Performance Option shall expire and
shall no longer be exercisable. In addition, the Performance Option shall become
unexercisable as set forth in Section 3.5.
3.5 Term of Options. The Wilstar Option and
the Performance Option shall have a five (5) year term from the date of this
Agreement; however, neither the Wilstar Option nor the Performance Option may be
exercised to any extent by anyone after the first to occur of the following
events:
(a) The expiration of three (3) months
from the time of Margolis' Termination of Employment, if such Termination of
Employment is pursuant to Section 9.1 or 9.4 of the Management Agreement.
(b) The expiration of six (6) months
from the date of Optionee's Termination of Employment by reason of Margolis'
disability (as such term is defined in Section 9.5 of the Management Agreement)
or death; or
(c) The effective date of either the
merger or consolidation of the Company with or into another corporation where
the Company is not the surviving entity, or the acquisition by another
corporation or person of all or substantially all of the Company's assets or a
majority or more of the Company's then outstanding voting stock, or the
liquidation or dissolution of the Company ("Reorganization Transaction"), unless
the Committee waives this provision in connection with Reorganization
Transaction. At least thirty (30) days prior to the effective date of such
Reorganization Transaction, the Committee shall give Optionee notice of such
event if the Option is then outstanding.
3.6 Acceleration of Exercisability--Merger. In
the event of a Reorganization Transaction, not less then thirty (30) days prior
to the effective date of such event the Company shall notify Wilstar thereof and
the Wilstar Option and/or the Performance Option shall be exercisable as to all
the shares covered thereby, notwithstanding that such Option may not yet have
become fully exercisable under Section 3.1 and/or Section 3.3; provided.
however, that this acceleration of exercisability shall not take place if:
(a) The Wilstar Option and/or the
Performance Option becomes unexercisable under Section 3.5 prior
to said effective date; or
-6-
<PAGE> 7
(b) In connection with such an event,
upon the occurrence of both (i) provision is made for an assumption of the
Wilstar Option and/or the Performance Option or a substitution for such options
of a new option by an employer corporation or a parent or subsidiary of such
corporation and (ii) in the event that the Company has not achieved at least 80%
of its Budgeted Earnings (as such term is defined in the Management Agreement
during the term of the Agreement up to and including the last completed quarter
ending prior to the execution of the definitive agreement with respect to the
Reorganization Transaction;
The Committee may make such determinations and
adopt such rules and conditions as it, in its reasonable discretion, deems
appropriate in connection with such acceleration of exercisability, including,
but not by way of limitation, provisions to ensure that any such acceleration
and resulting exercise shall be conditioned upon the consummation of the
contemplated corporate transaction.
3.7 Acceleration of Exercisability--Death or
Disability. In the event of the death or disability of Margolis:
(a) all unexercisable Wilstar Options
shall immediately become exercisable; and
(b) all unexercisable Performance
Options shall no longer be exercisable and shall terminate.
3.8 Acceleration of Exercisability--Discharge
Without Cause, Etc. In the event of the termination of the Management Agreement
pursuant to Section 9.2 or 9.3 all unexercisable Wilstar Options and Performance
Options shall immediately become exercisable.
ARTICLE IV
EXERCISE OF OPTION
4. Exercise of Options in General. The Wilstar Option
and the Performance Option shall be exercisable as set forth in this Article IV.
4.1 Person Eligible to Exercise. The Options
shall be exercisable only by Optionee.
4.2 Partial Exercise. Any exercisable portion
of the Wilstar Option or the Performance Option may be exercised in whole or in
part at any time prior to the time when the Wilstar Option or portion thereof
and/or the Performance Option becomes unexercisable under Section 3.5.
4.3 Manner of Exercise. Any exercisable
portion of the Wilstar Option and/or the Performance Option may be
-7-
<PAGE> 8
exercised solely by delivery to the Company at its principal office of all of
the following:
(a) Notice in a properly authorized
writing signed by a qualified officer of Optionee that states that all or a
portion of the Wilstar Option and/or the Performance Option is thereby
exercised; and
(b) Full payment (in cash) for the
shares with respect to which such Option or portion is exercised; and
(c) A bona fide written representation
and agreement, in a form satisfactory to the Committee, signed by Optionee, that
states that the shares of stock are being acquired for Optionee's own account,
for investment and without any present intention of distributing or reselling
said shares or any of them except as may be permitted under the Securities Act
and then applicable rules and regulations thereunder. The Company may require an
opinion of counsel acceptable to it to the effect that any subsequent transfer
of shares acquired on an exercise of either or both of the Options exercise does
not violate the Securities Act, and may issue stop-transfer orders covering such
shares. Share certificates evidencing stock issued on exercise of the Options
shall bear an appropriate legend referring to the provisions of this subsection
(c) and the agreements herein. The written representation and agreement referred
to in the first sentence of this subsection (c) shall, however, not be required
if the shares to be issued pursuant to such exercise have been registered under
the Securities Act, and such registration is then effective in respect of such
shares; and
(d) Full payment to the Company (or
other employer corporation) of all which, under federal, state or local tax law,
it is required to withhold upon exercise of the Option.
4.4 Conditions to Issuance of Stock
Certificates. The shares of stock deliverable upon the exercise of the Options,
or any portion thereof, may be either previously authorized but unissued shares
or issued shares which have then been reacquired by the Company. Such shares
shall be fully paid and non-assessable.
4.5 Rights as Shareholder. The holder of the
Options shall not be, no have any of the rights or privileges of, a shareholder
of the Company in respect of any shares purchasable upon the exercise of any
part of the Options unless and until certificates representing such shares shalt
have been issued by the Company to such holder.
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<PAGE> 9
ARTICLE V
OTHER PROVISIONS
5. Miscellaneous Provisions. The following provisions
shall be a part of this Agreement.
5.1 Option Not Transferrable. Neither the
Options nor any interest or right therein or part thereof shall be liable for
the debts, contracts or engagements of Optionee or its successors in interest or
shall be subject to disposition by transfer, alienation, anticipation pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect.
5.2 Shares to be Reserved. The Company shall
at all times during the term of the Options reserve and keep available such
number of shares of stock as will be sufficient to satisfy the requirements of
this Agreement.
5.3 Notices. All notices, requests, demands
and other communication called for or contemplated hereunder shall be in writing
and shall be deemed duly given (i) when received; (ii) four (4) days after being
sent by certified or registered United States mail, postage prepaid, with return
receipt requested; or (iii) when received by wire or telecopy addressed to the
parties at the following addresses, or at such other addresses as the parties
may designate by written notice in the manner aforesaid:
If to the Company: Cherokee Inc.
6835 Valjean Avenue
Van Nuys, CA 91406
Attention: Chief Financial Officer
Fax: (818) 908-9191
If to Optionee: The Wilstar Group
6835 Valjean Avenue
Van Nuys, CA 91406
Attention: Robert Margolis
Fax: (818) 908-9191
5.4 Headings. Headings are provided herein for
convenience only and are not to serve as a basis for interpretation or
construction of this Agreement.
5.5 Shareholder Approval. The Plan may be
submitted for approval by the Company's shareholders within twelve (12) months
after the date the Plan was initially adopted by the Board in such event,
Wilstar may, but shall not be
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<PAGE> 10
required to elect to have the Performance Option and the Wilstar Option included
as part of the Plan.
5.6 Governing Law. This Agreement shall be
governed by and enforced in accordance with the laws of the State of California
applicable to agreements to be entered into and wholly performed within the
State of California without reference to the conflicts of law provisions
thereof.
5.7 Attorneys' Fees. In the event any action
in law or equity or other proceeding is brought for the enforcement of this
Agreement or in connection with an interpretation of the provisions of this
Agreement, the Court shall award reasonable attorneys' fees and other costs
reasonably incurred in such action or proceeding to the parties based on its
judgment of the relative merits of their respective claims.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.
CHEROKEE INC., a Delaware
corporation, the "Company"
By:________________________________
Name:
President
By:________________________________
Name:
Secretary
THE NEWSTAR GROUP, a California
corporation d/b/a The Wilstar
Group, "Optionee"
By:________________________________
Name:
President
By:________________________________
Name:
Secretary
[Taxpayer Identification Number]
-10-
<PAGE> 11
AMENDMENT NO. 1
TO
THE NON-QUALIFIED STOCK OPTION AGREEMENT
This Amendment No. 1 dated as of the 23rd day of March, 1996,
by and between The Newstar Group, a California corporation, d/b/a The Wilstar
Group ("Wilstar") and Cherokee Inc., a Delaware corporation (the "Company"), to
the Non-Qualified Stock Option Agreement dated as of May 4, 1995 ("Amendment No.
1").
WHEREAS, Wilstar and the Company entered into a Non- Qualified
Stock Option Agreement dated as of May 4, 1995 (the "Option Agreement");
WHEREAS, Wilstar and the Company now desire to amend
and modify certain terms and conditions of the Option Agreement;
NOW THEREFORE, in consideration of the foregoing premises and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and Wilstar agree as follows:
1. Section 2.3 of the Option Agreement is amended to
read in its entirety as follows:
2.3 Performance Option. Under the Performance
Option, Optionee shall have the option to purchase any part or
all of an aggregate of up to 20% of the Diluted Common Stock
upon the terms and conditions set forth in this Agreement.
2. Section 3.3 of the Option Agreement shall be
amended to read in its entirety as follows:
3.3 Performance Option. The Performance shall
vest and be exercisable as follows:
(a) With respect to the initial 15% of the
Diluted Common Stock, on March 26, 1996; and
(b) With respect to the balance of 5% of the
Diluted Common Stock, on April 24, 1996.
3. A new Section 4.6 is added to the Option Agreement
to read in its entirety as follows:
4.6 Forfeiture of Options.
<PAGE> 12
(a) Notwithstanding anything to the contrary
contained herein, the parties hereto agree that in the event
that: (x) the Company declares any dividend of cash or
property or otherwise declares any payment to the holders of
its Common Stock (the "Distribution"), (y) Optionee or its
assignee has exercised the Performance Options for an amount
which in the aggregate is greater than fifteen (15%) of the
Diluted Common Stock (the "Additional Shares") so that the
Additional Shares would be entitled to such Distribution, and
(z) the declaration of such Distribution is prior to the
occurrence of either of the following: (i) thirty (30)
consecutive trading days during which time the closing price
of the Common Stock is no less than $7.60 per share; or (ii)
May 31, 1997; then and in such event Optionee agrees that it
or any subsequent holder of the Additional Shares shall not be
entitled to and shall forfeit any and all rights to the
Distribution solely with respect to Additional Shares (the
"Forfeiture").
(b) In connection with the Forfeiture,
Optionee further agrees as follows:
(i) until the occurrence
of either of the events set forth in (z), above, all share
certificates issued in connection with the Additional Shares
shall, in addition to such other legends that may be required,
contain the following legend:
"PURSUANT TO AMENDMENT 1. TO THE REVISED AND RESTATED
MANAGEMENT AGREEMENT BY AND BETWEEN THE COMPANY AND THE
NEWSTAR GROUP D/B/A THE WILSTAR GROUP, THE HOLDER OF THE
SHARES REPRESENTED BY THIS CERTIFICATE HAS IRREVOCABLY AGREED
TO WAIVE AND FORFEIT ANY AND ALL RIGHTS IN AND TO ANY DIVIDEND
OF CASH OR PROPERTY OR OTHER PAYMENT WITH RESPECT TO THESE
SHARES WHICH IS DECLARED BY THE COMPANY PRIOR TO THE
OCCURRENCE OF EITHER OF THE FOLLOWING EVENTS: (I) THIRTY (30)
CONSECUTIVE TRADING DAYS DURING WHICH TIME THE CLOSING PRICE
OF THE COMPANY'S COMMON STOCK IS EQUAL TO OR GREATER THAN
$7.60 PER SHARE; OR (II) MAY 31, 1997."
(ii) Optionee agrees that if any
of the Additional Shares are sold,
<PAGE> 13
transferred, hypothecated, pledged or assigned by it to
another holder (the "Transfer") prior to the occurrence of
either of the events set forth in (z) above, that, as a
precondition of such Transfer that the transferee acknowledge
and agree to the Forfeiture as set forth herein; and
(iii) that Optionee and any
subsequent holder of the Additional Shares hereby agrees to
indemnify and hold harmless the Company from any and all
claims, damages, losses, judgments and costs (including
attorneys' fees) incurred by the Company in connection with or
relating to any claim arising out of or relating to the
Forfeiture asserted by any subsequent holder of Additional
Shares.
4. Except as expressly modified by the terms hereof,
all of the terms and conditions of the Option Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment No.
1 to be duly executed and delivered as of the date first above written.
CHEROKEE INC.
________________________
By:_____________________
Its:____________________
THE NEWSTAR GROUP
________________________
By: Robert Margolis
Its: Chief Executive Officer
