<PAGE>
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CHEROKEE INC.
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(Name of Registrant as Specified In Its Charter)
CHEROKEE INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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CHEROKEE INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
ON SEPTEMBER 15, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Cherokee
Inc. (the "Company") will be held at The Sportsmen's Lodge and Hotel, 12825
Ventura Boulevard, Studio City, California, on September 15, 1997, at 10:00 A.M.
(Pacific Time) for the following purposes:
1) To elect seven directors to the Board of Directors who will serve
until the Company's 1998 Annual Meeting of Stockholders and until
their successors have been duly elected and qualified;
2) To approve the Third Amendment to Revised and Restated Management
Agreement between The Newstar Group and Cherokee Inc.;
3) To transact such other business as may be properly brought before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on August 4, 1997 will be
entitled to notice of and to vote at said meeting or any adjournments thereof.
A list of such stockholders shall be open to the examination of any stockholder
at the meeting and for a period of ten days prior to the date of the meeting at
the office of Cherokee Inc., 6835 Valjean Avenue, Van Nuys, California 91406.
The Board of Directors urges each stockholder to read carefully the
enclosed proxy statement which is incorporated herein by reference.
By Order of the Board of Directors
/s/ Carol A. Gratzke
Carol A. Gratzke
Secretary
6835 Valjean Avenue
Van Nuys, CA 91406
Dated: August 14, 1997
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE 1997 ANNUAL MEETING OF STOCKHOLDERS IN
PERSON, PLEASE COMPLETE, DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE
ENCLOSE ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOUR
PROXY WILL BE REVOCABLE ANY TIME PRIOR TO ITS EXERCISE EITHER IN WRITING OR BY
VOTING YOUR SHARES PERSONALLY AT THE 1997 ANNUAL MEETING OF STOCKHOLDERS.
<PAGE>
CHEROKEE INC.
6835 VALJEAN AVENUE
VAN NUYS, CA 91406
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 15, 1997
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (the "Board") of Cherokee Inc., a Delaware corporation
("Cherokee" or "Company"), of proxies to be used at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at The Sportsmen's Lodge and
Hotel, 12825 Ventura Boulevard, Studio City, California, on September 15, 1997,
at 10:00 A.M. (Pacific Time) and at any adjournments thereof. A form of the
proxy is enclosed for use at the meeting. Stockholders are being asked to vote
upon the election of seven directors to the Board, to vote upon approval of the
Third Amendment to Revised and Restated Management Agreement between The Newstar
Group and Cherokee Inc. (the "Third Amendment") and to transact such other
business as may properly come before the meeting.
If no instructions are given on the proxy, all shares represented by valid
proxies received pursuant to this solicitation (and not revoked before they are
voted) will be voted FOR the directors nominated by the Board, FOR approval of
the Third Amendment and as recommended by the Board with regard to all other
matters or if no such recommendation is given, in the discretion of the proxy
holder. Proxies marked "withhold" and/or "abstain" will be counted towards the
quorum requirement but will not be voted for the election of the Board's
director nominees or the Third Amendment.
A proxy may be revoked at any time before it is exercised by giving written
notice of revocation to the Secretary of the Company or by submitting, prior to
the time of the Annual Meeting, a properly executed proxy bearing a later date.
Stockholders having executed and returned a proxy, who attend the meeting and
desire to vote in person, are requested to so notify the Secretary of the
Company prior to the time of the meeting.
The mailing address of the Company is 6835 Valjean Avenue, Van Nuys,
California 91406. The approximate date on which this Proxy Statement and form
of proxy are being mailed to the stockholders is August 14, 1997.
GENERAL INFORMATION
OUTSTANDING SHARES AND VOTING RIGHTS
There were 7,741,986 shares of common stock of the Company ("Common Stock")
outstanding as of August 4, 1997, the Record Date for the stockholders entitled
to vote at the Annual Meeting. Each stockholder of record at the close of
business on August 4, 1997 is entitled to one vote for each share of Common
Stock then held on each matter to come before the meeting, or any adjournments
thereof.
<PAGE>
A majority of the votes eligible to be cast at the Annual Meeting by
holders of Common Stock, or 3,948,413 votes, represented in person or by proxy
at the Annual Meeting is required for a quorum. A plurality of the votes cast
at the Annual Meeting by holders of shares of Common Stock entitled to vote, and
present, in person or by proxy at the Annual Meeting voting for the election of
directors is required for the election of each nominee as a director. The
nominees receiving the seven highest numbers of votes will become directors.
The proposal for approval of the Third Amendment must receive the favorable vote
of a majority of the total number of shares of Common Stock represented and
entitled to vote at the Annual Meeting or any adjournment thereof for approval.
Votes that are withheld from any nominee will be excluded from the vote and will
have no effect. Brokers who hold shares in street name have the authority to
vote on certain "routine" matters when they have not received instructions from
beneficial owners, Brokers that do not receive instructions are entitled to vote
on the election of directors. The Company's Certificate of Incorporation does
not provide for cumulative voting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of August 4, 1997 by each person
believed by the Company to own beneficially more than 5% of the outstanding
shares of any class of the Company's voting securities. Unless noted otherwise,
the holders listed below have sole voting power and dispositive power over the
shares beneficially held by them. As of August 4, 1997, 7,741,986 shares of
Common Stock were outstanding.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENTAGE
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------ -------------------- -----------
<S> <C> <C>
Value Partners, Ltd.
C/O Fisher Ewing Partners
2200 Ross Avenue
Suite 4660 West
Dallas, TX 75201 2,104,069 27.2%
Robert Margolis
6835 Valjean Avenue
Van Nuys, CA 91406 2,441,277 /(A)/ 29.0%
Cowen & Company
Financial Square
New York, NY 10005 394,391 /(B)/ 5.1%
Axicom Capital Group
245 E. 54th Street,
Suite 5M
New York, NY 10022 378,267 /(D)/ 4.9%
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
The Newstar Group, Inc.
dba The Wilstar Group
6835 Valjean Avenue
Van Nuys, CA 91406 1,475,670 /(A)(C)/ 17.5%
</TABLE>
(A) Includes 800,000 shares held by The Newstar Group, Inc. d/b/a The Wilstar
Group ("Wilstar") and includes 675,670 shares which may be acquired by
Wilstar pursuant to currently exercisable options. Mr. Margolis is a
shareholder and Chief Executive Officer of Wilstar. Prior to May 31, 1997,
Mr. Margolis owned 50.1% of the stock of Wilstar. Mr. Margolis became the
sole stockholder of Wilstar through a series of redemptions occurring on
May 31, 1997 and June 23, 1997. The consideration for the redemptions may
include certain Company common stock and options issued to Wilstar by the
Company, none of which have been distributed by Wilstar.
(B) Includes 7,148 shares with respect to which voting power and dispositive
power are shared.
(C) Does not include 319,871 shares individually held by Mr. Margolis.
(D) Avi Dan, a director of the Company, is president and a shareholder of
Axicom Capital Group and may be deemed the beneficial owner of such shares.
The combined ownership of Axicom and Mr. Dan is 393,267 shares, which
represents 5.1% of the outstanding stock of the Company.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of August 4, 1997, owned by all
current and nominated directors, each of the executive officers named in the
Summary Compensation Table and all directors and executive officers as a group.
Unless noted otherwise, the holders listed below have sole voting and
dispositive power over the shares beneficially held by them.
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<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS
- ---------------------------- -------------- ----------
<S> <C> <C>
Robert Margolis 2,441,277 /(A)/ 29.0%
Herschel Elias 15,000 *
Douglas Weitman 232,490 3.0%
Jess Ravich 180,072 /(C)/ 2.3%
Keith Hull 15,000 /(D)/ *
Avi Dan 393,267 /(B)(E)/ 5.1%
Jeffrey Schultz 10,000 *
Carol Gratzke 10,000 /(F)/ *
Patricia Warren 72,997 /(G)/ 0.9%
Timothy Ewing
All Executive Officers and 3,358,503 /(H)/ 39.59%
directors as a group
</TABLE>
- --------------------------------------
* Less than 1%
(A) Includes 955,607 shares held individually by Mr. Margolis and 800,000
shares held by Wilstar and includes 675,670 shares which may be acquired by
Wilstar pursuant to currently exercisable options and 10,000 shares which
may be purchased by Mr. Margolis pursuant to currently exercisable options
at an exercise price of $5.50. Mr. Margolis is a shareholder and Chief
Executive Officer of Wilstar. Prior to May 31, 1997, Mr. Margolis owned
50.1% of the stock of Wilstar. Mr. Margolis became the sole stockholder of
Wilstar through a series of redemptions occurring on May 31, 1997 and June
23, 1997. The consideration for the redemptions may include certain
Company common stock and options issued to Wilstar by the Company, none of
which have been distributed by Wilstar.
(B) Includes 15,000 shares, of which 5,000 may be purchased pursuant to a
currently exercisable warrant at an exercise price of $3.00 per share and
10,000 pursuant to currently exercisable options at an exercise price of
$5.50.
(C) Includes 165,033 shares owned by Libra Investments, Inc. ("Libra"). Mr.
Ravich is the Chairman, Chief Executive Officer, and a shareholder of Libra
and, therefore, may be deemed to be the beneficial owner of such shares.
(D) Excludes 77,386 shares owned by Avondale Mills, Inc. Mr. Hull is a Vice
President of Avondale Mills, Inc., however, he disclaims to be the
beneficial owner of such shares.
(E) Includes 378,267 shares owned by Axicom Capital Group. Mr. Dan is the
President and a shareholder of Axicom Capital Group and, therefore, may be
deemed to be the beneficial owner of such shares.
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<PAGE>
(F) Includes 10,000 shares, of which 3,334 and 6,666 shares may be purchased
pursuant to currently exercisable options at an exercise price of $3.13 and
$3.88, respectively.
(G) Includes 45,000 shares, of which 40,000 and 5,000 shares may be purchased
pursuant to currently exercisable options at an exercise price of $3.00 and
$3.88, respectively,
(H) Includes 755,670 shares which may be acquired pursuant to currently
exercisable warrants and options.
ITEM 1 ON PROXY CARD:
ELECTION OF DIRECTORS
At the Annual Meeting, stockholders will be asked to elect seven Directors
to serve until the next annual meeting of stockholders and until their
respective successors shall be elected and shall qualify. The Board of
Directors of the Company consists of seven members. Six of the seven current
directors have been nominated for reelection at the meeting for one-year terms
and one new director nominee has been proposed.
In the event that any nominee for director should become unavailable, it is
intended that votes will be cast, pursuant to the enclosed proxy, for such
substitute nominee as may be nominated by the Board. The Board has no present
knowledge that any of the persons named will be unavailable to serve.
INFORMATION CONCERNING DIRECTORS AND NOMINEES FOR BOARD OF DIRECTORS
The following table sets forth the principal occupation or employment and
principal business of the employer, if any, of each director and nominee for
director of the Company, as well as his age, business experience, other
directorships held by him and the period during which he has previously served
as director of the Company.
<TABLE>
<CAPTION>
<S> <C>
NAME, AGE PRINCIPAL OCCUPATION FOR PAST FIVE YEARS;
AND OTHER DIRECTORSHIPS;
PRESENT POSITION WITH THE COMPANY BUSINESS EXPERIENCE
- ------------------------------------- -----------------------------------------
Robert Margolis, 49 Mr. Margolis was appointed Chairman
Director, Chairman of the Board of of the Board and Chief Executive
Directors and Chief Executive Officer Officer of the Company on May 5,
1995. Mr. Margolis was the
co-founder of the Company's Apparel
Division in 1981. He had been the
Co-Chairman of the Board of
Directors, President and Chief
Executive Officer of the Company
since June 1990 and became Chairman
of the Board on June 1, 1993. Mr.
Margolis resigned all of his
positions with the Company on October
31, 1993 and entered into a one-year
consulting agreement with the
Company. Since 1994 Mr. Margolis
</TABLE>
-5-
<PAGE>
<TABLE>
<S> <C>
has been Chief Executive Officer and
a Director of Wilstar, a privately
owned company which operates various
textile and apparel related
enterprises, including a private
label apparel manufacturing
operation. Wilstar's private label
manufacturing operations were sold
to an unrelated party in April,
1997. Wilstar provides Mr. Margolis'
services as Chief Executive Officer
of the Company pursuant to the terms
of a management agreement between
the Company and Wilstar (the
"Wilstar Management Agreement").
Timothy Ewing, 37 Mr. Ewing, a Chartered Financial
Director nominee Analyst, is the general partner of
Fisher Ewing Partners and manager of
Value Partners, Ltd., a Texas based
private investment partnership
formed in 1989. Mr. Ewing currently
serves on the board of directors of
The Baylor Healthcare System
Foundation, the governing board of a
Hospital System based in Dallas,
Texas, and is vice chairman of the
board of directors of First Fidelity
Bancorp, Inc., a bank holding
company in Irvine, California.
Jeffrey Schultz, 51 Dr. Schultz has been a director of
Director the Company since December 1994.
Dr. Schultz has served as a
Professor at Christian Brothers
University since 1986. Dr. Schultz
served as a consultant for the
following companies: Southmark
Corporation from 1990 to 1993, Prime
Motor Inns from 1991 to 1993, and
PGI Industries, Inc. from 1991 to
1993. Dr. Schultz also currently
serves as a director of Carolco
Corp., a motion picture production
company, and is a trustee of the
Lone Star Liquidating Trust, an
insurance company.
Douglas Weitman, 54 Mr. Weitman has been a director of
Director the Company since May 1995. For
more than five years, Mr. Weitman
has been the Chief Executive Officer
of Security Textile Corp., a
privately owned manufacturer of
apparel and textile related products.
Jess Ravich, 40 Mr. Ravich has been a Director of the
Director Company since May 1995. Mr. Ravich
has been the Chief Executive Officer
and the majority shareholder of
Libra Investments, Inc. ("Libra"), a
registered broker-dealer since it
was founded in June 1991.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
From March 1990 to March 1991, he was
Executive Vice President and Director of
High Yield Trading with Jeffries & Co.,
a registered broker-dealer.
Keith Hull, 44 Mr. Hull has been a director since
Director June 1995. For more than five years,
Mr. Hull has been President of
Avondale Fabrics and Vice President
of its parent, Avondale Mills Inc., a
diversified manufacturer of textiles.
Avi Dan, 39 Mr. Dan has been a director since
Director June 1995. Mr. Dan is President of
Axicom Capital Group, a foreign
investment company. From August
1993, to the present Mr. Dan has been
the President of Cove Capital, a
privately owned investment company.
From August, 1990 to August, 1993 Mr.
Dan was the President of Perlman
Realty Co., a real estate investment
company.
</TABLE>
THE BOARD RECOMMENDS VOTES FOR THE ELECTION OF ALL SEVEN NOMINEES FOR
DIRECTORS. ALL THE NOMINEES, EXCEPT MR. EWING, CURRENTLY SERVE AS DIRECTORS OF
THE COMPANY. PROXIES GIVEN WITHOUT INSTRUCTIONS WILL BE VOTED FOR ALL SEVEN
NOMINEES.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business affairs of the Company are managed under the direction of the
Board of Directors, although the Board is not involved in day-to-day operations.
During the fiscal year ended May 31, 1997 the Board met five times. Each
director attended at least 75% of all Board and applicable committee meetings
during the fiscal year ended May 31, 1997.
AUDIT COMMITTEE
The Audit Committee recommends to the Board of Directors a firm of
independent certified public accountants to conduct the annual audit of the
Company's books and records; reviews with such accounting firm the scope and
results of the annual audit; consults with the independent accountants with
regard to the adequacy of the Company's system of internal accounting controls;
and reviews fees charged by the independent accountants for professional
services.
The Company's independent public accountants are invited to attend meetings
of the Audit Committee and certain members of management may also be invited to
attend. In Fiscal 1997, the Audit Committee consisted of two non-employee
directors, Herschel Elias and Jess Ravich. The Audit Committee met once during
this period.
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<PAGE>
COMPENSATION COMMITTEE
The Company's compensation program for executives is administered by the
Compensation Committee of the Board of Directors. In Fiscal 1997, the
Compensation Committee consisted of Dr. Schultz, Mr. Margolis and Mr. Weitman.
In June, 1997, Mr. Margolis and Mr. Weitman resigned as members of the
Compensation Committee and the members appointed were Dr. Schultz and Mr.
Ravich, both of whom are non-employee directors and outside directors within the
meaning of Section 162(m) of the Internal Revenue Code. The committee is
responsible for setting and administering executive officer salaries and the
annual bonus and long-term incentive plans that govern the compensation paid to
Cherokee's executives.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Except for Mr. Margolis, who is the chief executive officer, a director
and, as of June 23, 1997, the sole shareholder of Wilstar, and Mr. Weitman, who,
until June 23, 1997, was a director and shareholder of Wilstar, none of the
executive officers of the Company has served on the board of directors or on the
compensation committee of any other entity, any of whose officers served either
on the Board of Directors or on the Compensation Committee of the Company. On
May 4, 1995, the Company and Wilstar entered into the Wilstar Management
Agreement pursuant to which Wilstar agreed to provide executive management
services to the Company by providing the services of Robert Margolis as Chief
Executive Officer. Wilstar, a private label manufacturer until April 1997, made
apparel bearing the Cherokee trademark for several retail stores, who have
existing licensing agreements with the Company. All deals were arms-length
transactions between Wilstar and these retail stores and were negotiated
separately and apart from the Company. Mr. Margolis was not been involved in any
of these transactions. The Wilstar Management Agreement was amended for
services rendered on or after June 1, 1997 (See "Employment Contracts and
Management Agreements" and "Approval of Third Amendment to Wilstar Management
Agreement" below for a further description of the Wilstar Agreement as amended).
The provisions of the Third Amendment to the Agreement are contingent upon the
approval of the stockholders of the Company. The Third Amendment is being
submitted for consideration and approval of the stockholders of the Company as
set forth in "Approval of Third Amendment to Wilstar Management Agreement,"
below.
Since May 26, 1995, the Company has shared 3,000 square feet of office
space with Wilstar. The Company uses approximately one-half of such space and
pays Wilstar for such usage at the rate of $.75 per square foot or $1,125 per
month. In addition, the Company reimburses Wilstar for one-half of certain
costs relating to this office space. The rent and costs are prorated based upon
square footage used by Cherokee and Wilstar does not profit from this
reimbursement. Since May 4, 1996, the Company has shared 4,000 feet of Wilstar's
warehouse space at $.50 per square foot as storage space for its financial
records. Both rental agreements are on a month to month basis.
Since May 5, 1995, the Company has sold certain fabric and trim to Wilstar
for approximately $241,000 and has purchased certain finished apparel products
for approximately $510,000 from Wilstar for sale to the Company's customers.
The Company does not expect to sell any other assets to Wilstar and does not
expect to purchase any more product from Wilstar. The Company's purchases of
product from Wilstar were to fill existing orders from the Company's customers.
In connection with its purchases and sales to and from Wilstar, the
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<PAGE>
Company believes that the prices and terms were fair to the Company and were at
least as advantageous to the Company as the Company could have negotiated with
unrelated parties.
DIRECTORS' REMUNERATION, WARRANT GRANTS AND STOCK OPTIONS
For their services on the Board during Fiscal 1997, non-officer or non-
employee directors were paid a retainer fee of $15,000 per annum, $1,500 for
each Board Meeting and $750 for each Telephonic Board Meeting attended. All
outside directors have received a five year warrant to purchase 5,000 shares of
Common Stock at either $2.43 or $3.00 per share, exercise prices approximately
equal to the market price of the Common Stock at the time of grant. On October
14, 1996, the Company granted to all directors stock options to acquire from the
Company 10,000 shares of Common Stock at $5.50 per share, an exercise price
approximately equal to the market price of the Common Stock at the time of
grant.
Shown below is information concerning the amount paid to each non-officer
or non-employee director during Fiscal 1997:
<TABLE>
<CAPTION>
Director Fees Paid in Fiscal 1997
- -------- ------------------------
<S> <C>
Herschel Elias $26,250
Jeffrey Schultz 33,075
Douglas Weitman 30,000
Jess Ravich 26,250
Keith Hull 25,500
Avi Dan 26,250
</TABLE>
Set forth below is further information on warrants and on stock options the
Company granted to all directors. Each warrant entitled the director to
purchase 5,000 shares of Common Stock:
<TABLE>
<CAPTION>
Director # of Options Date of Grant Exercise Price Date Exercised
- -------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Herschel Elias 5,000 February 1, 1995 $ 2.43 April 24, 1996
Jeffrey Schultz 5,000 February 1, 1995 2.43 April 24, 1996
Keith Hull 5,000 July 25, 1995 3.00 January 24, 1997
Jess Ravich 5,000 July 25, 1995 3.00 January 21, 1997
Avi Dan 5,000 July 25, 1995 3.00 July 15, 1997
Douglas Weitman 5,000 July 25, 1995 3.00 January 24, 1997
Herschel Elias 10,000 October 14, 1996 5.50 January 24, 1997
Jeffrey Schultz 10,000 October 14, 1996 5.50 February 14, 1997
Keith Hull 10,000 October 14, 1996 5.50 January 24, 1997
Jess Ravich 10,000 October 14, 1996 5.50 January 21, 1997
Avi Dan 10,000 October 14, 1996 5.50 July 15, 1997
Douglas Weitman 10,000 October 14, 1996 5.50 January 24, 1997
Robert Margolis 10,000 October 14, 1996 5.50 unexercised
</TABLE>
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<PAGE>
ITEM 2 ON PROXY CARD:
APPROVAL OF THIRD AMENDMENT TO
WILSTAR MANAGEMENT AGREEMENT
At the 1997 Annual Meeting of Stockholders, the Company's stockholders will
be asked to approve the Third Amendment to the Wilstar Management Agreement (the
"Third Amendment").
On May 4, 1995, the Company and Wilstar entered into a Management Agreement
pursuant to which Wilstar agreed to provide executive management services to the
Company by providing the services of Robert Margolis as Chief Executive Officer.
For a discussion of the initial terms of the Wilstar Management Agreement and as
previously amended, see "Executive Compensation and Other Information -
Employment Contracts and Management Agreements" below. On July 11, 1997, the
Compensation Committee and the Board approved the Third Amendment to the Wilstar
Management Agreement, contingent upon the approval of the stockholders of the
Company.
THE THIRD AMENDMENT
Effective for services rendered on or after June 1, 1997, the Wilstar
Management Agreement was amended by the adoption of two separate amendments.
These amendments are designated as the Second Amendment and the Third Amendment,
respectively. For discussion of the Second Amendment, which is not subject to
stockholder approval, see "Executive Compensation and Other Information -
Employment Contracts and Management Agreements" below.
The changes to the Management Agreement made by the Third Amendment,
subject to stockholder approval, include: (i) provision for payment of an
"acquisition bonus" to Wilstar in the event of an acquisition of the Company for
a price per share of not less than $12 pursuant to an acquisition agreement
entered into by the end of fiscal year 2000 (the amount of such acquisition
bonus ranges from $1,000,000 to $2,500,000 in the event of an acquisition of the
Company for a price per share ranging from $12 to $15 or more as follows:
<TABLE>
<CAPTION>
Consideration Per Share Acquisition Bonus
- -------------------------- -----------------
<S> <C>
less than $12.00 zero
$12.00-12.99 $1,000,000
13.00-13.99 1,500,000
14.00-14.99 2,000,000
15.00 or more 2,500,000
</TABLE>
and automatically decreases by one-third per year if the acquisition agreement
is not entered into by the end of fiscal years 1998, 1999, or 2000); (ii)
provision for payment of $3,000,000 to Wilstar in consideration for an agreement
not to compete with the Company for a specified period of time by Wilstar and
Mr. Margolis in the event of an acquisition of the Company pursuant to an
acquisition agreement entered into by the end of fiscal year 2000 (the amount of
such payment automatically decreases by one-third per year if the acquisition
agreement is not entered into by
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<PAGE>
the end of fiscal years 1998, 1999, or 2000); and (iii) provision for reduction
of payments under the Management Agreement that are contingent on a change in
control if it is determined that such payments would result in the
nondeductibility of some or all of such payments under the provisions of Section
280G of the Internal Revenue Code.
The provisions of the Third Amendment are contingent upon stockholder
approval.
REASONS FOR THIRD AMENDMENT
The Compensation Committee proposed, structured and recommended the Third
Amendment to the Board of Directors and the Board of Directors approved it,
subject to approval of the stockholders, to give Mr. Margolis a substantial
incentive to enhance stockholder value in any acquisition of the Company
pursuant to an agreement entered into by May 31, 2000, and to secure for the
benefit of the Company and an acquiror of the Company a commitment of Mr.
Margolis and Wilstar not to compete with the Company following an acquisition.
VOTE REQUIRED FOR APPROVAL
The proposal for approval of the Third Amendment must receive the favorable
vote of a majority of the total number of shares of Common Stock represented and
entitled to vote at the Annual Meeting or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL
OF THE THIRD AMENDMENT TO THE WILSTAR MANAGEMENT AGREEMENT. PROXIES GIVEN
WITHOUT INSTRUC TIONS WILL BE VOTED FOR APPROVAL OF THE THIRD AMENDMENT TO THE
WILSTAR MANAGEMENT AGREEMENT.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION TABLE
Shown below is information concerning the annual and long-term compensation
for services in all capacities to the Company for the years ended May 31, 1997,
June 1, 1996, and June 3, 1995 of those persons who were at any time during the
year ended May 31, 1997 the Chief Executive Officer and at May 31, 1997 the
other most highly compensated executive officers of the Company who received
over $100,000 in salary and bonus.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION/(A)/ COMPENSATION
------------------------ ------------
NAME
AND YEAR SALARY/(B)/ BONUS/(B)/ STOCK OPTION
PRINCIPAL POSITION $ $ AWARDS # SHARES
- ----------------------------------------------------- ----------- ---------- ---------------
<S> <C> <C> <C> <C>
Robert Margolis 1997 -- /(C)/ -- 10,000
Chairman and Chief Executive Officer 1996 -- /(C)/ -- /(D)/
1995 -- /(C)/ -- /(D)/
Patricia Warren 1997 325,000 -- --
President 1996 125,000 -- 75,000
Carol Gratzke 1997 125,000 -- 10,000
Chief Financial Officer 1996 68,269 -- 30,000
1995 31,250 -- --
</TABLE>
(A) None of the named executive officers earned other annual compensation
except for perquisites which in no case exceeded the lesser of $50,000 or
10% of total annual salary and bonus for Fiscal 1995, 1996 and 1997.
(B) Amounts shown include cash and non-cash compensation earned by named
executive officers. No amounts earned were deferred at the election of
those officers.
(C) Mr. Margolis was appointed Chairman and Chief Executive Officer on May 4,
1995. Mr. Margolis provides his services to the Company pursuant to the
terms of the Wilstar Management Agreement. Wilstar received $400,000 in
annual compensation each year for providing such services, is eligible for
certain cash bonuses and has received certain options to purchase the
Company's Common Stock pursuant to the Wilstar Management Agreement. The
terms of the Wilstar Agreement have been amended for services rendered on
or after June 1, 1997 (See "Employment Contracts and Management Agreements"
below and "Approval to Third Amendment to Wilstar Management Agreement"
above for a further description of the Wilstar Management Agreement, as
amended). Prior to May 31, 1997, Mr. Margolis owned 50.1% of the stock of
Wilstar. Mr. Margolis became the sole stockholder of Wilstar through a
series of redemptions occurring on May 31, 1997 and June 23, 1997. His
compensation at Wilstar is based on its profitability. (See "Employment
Contracts and Management Agreements" below and "Approval to Third Amendment
to Wilstar Management Agreement" above for a further description of the
Wilstar Management Agreement).
(D) Pursuant to the Wilstar Management Agreement, Wilstar received options to
purchase shares of Common Stock. (See "Employment Contracts and Management
Agreements" below and "Approval to Third Amendment to Wilstar Management
Agreement" above for a further description of the Wilstar Management
Agreement).
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<PAGE>
OPTION GRANTS
Set forth below is further information on grants of stock options during
the year ended May 31, 1997 to the named officers which are reflected in the
Executive Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE POTENTIAL REALIZABLE
SECURITIES OF TOTAL VALUE AT ASSUMED
UNDERLYING OPTIONS ANNUAL RATES OF
OPTIONS GRANTED TO EXERCISE STOCK PRICE
GRANTED EMPLOYEES OR BASE EXPIRATION APPRECIATION FOR
(#) /(1)/ IN FISCAL PRICE DATE OPTION TERM /(3)/
1997 ($/SHARE)
- ---------------------------------------------------------------------------------------------------
5% 10%
------ ------
<S> <C> <C> <C> <C> <C> <C>
Robert Margolis 10,000 50% $5.50/(2)/ Oct. 13, 2001 13,750 27,500
- ---------------------------------------------------------------------------------------------------
Carol Gratzke 10,000 50% $6.25/(2)/ May 5, 2002 6,250 12,500
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) The options were granted on various dates and vest in equal shares over a
three year period. If the grantee's employment is terminated under certain
circumstances or there is a restructuring of the Company (as set forth in
the option agreement) these options would become immediately exercisable.
(2) The option exercise price is subject to adjustment in the event of a stock
split or dividend, recapitalization or certain other events.
(3) The actual value, if any, the named officer may realize will depend on the
excess of the stock price over the exercise price on the date the option is
exercised, so that there is no assurance the value realized by the named
officer will be at or near the value estimated. This account is net of the
option exercise price.
Option Exercises and Fiscal Year-End Values
- -------------------------------------------
Set forth below is information with respect to the unexercised options to
purchase Common Stock granted in Fiscal 1997 and prior years under employment
agreements to the named officers and held by them at May 31, 1997. None of the
named officers exercised any stock options during Fiscal 1997.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
NAME MAY 31, 1997 MAY 31, 1997 /(2)/
---- ------------ ------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert Margolis /(1)/ -- 10,000 $ -- $ 13,750
Patricia Warren 45,000 30,000 $ 170,000 $ 107,000
Carol Gratzke 10,000 30,000 $ 32,500 $ 97,500
</TABLE>
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<PAGE>
(1) Does not include stock option granted to Wilstar pursuant to the Wilstar
Agreement in connection with the Company's engagement of Robert Margolis as
Chairman and Chief Executive Officer (See "Employment Contracts and
Management Agreements" below and "Approval to Third Amendment to Wilstar
Management Agreement" above for a further description of the Wilstar
Management Agreement). Effective as of June 23, 1997, Mr. Margolis became
the sole stockholder of Wilstar as the result of certain redemptions. The
consideration for the redemptions may include certain Company common stock
and options issued to Wilstar by the Company, none of which have been
distributed by Wilstar.
(2) Based on the closing price of the NASDAQ Small Cap Issue Market on May 30,
1997 ($6.875), net of the option exercise price.
EMPLOYMENT CONTRACTS AND MANAGEMENT AGREEMENTS
On April 24, 1995, a group which included Mr. Margolis acquired
approximately 22.3% of the Company's then outstanding Common Stock (the
"Group"). The Group sought to have Mr. Margolis installed as Chief Executive
Officer of the Company and to have Mr. Margolis appointed a director of the
Company. On May 4, 1995, the Company and Wilstar entered into the Wilstar
Management Agreement pursuant to which Wilstar agreed to provide executive
management services to the Company by providing the services of Robert Margolis
as Chief Executive Officer. The Wilstar Management Agreement originally
provided it would terminate on May 31, 1998; however, the Wilstar Management
Agreement provided an automatic extension for additional one-year terms as long
as the Company's pre-tax earnings were equal to at least 80% of the pre-tax
earnings contained in the budget submitted to and approved by the Board of
Directors for such fiscal year. During Fiscal 1996, Wilstar met the 80% pre-tax
earnings rule; hence, the contract was extended for an additional one year term.
In addition, Wilstar received an option to purchase 7 1/2% of the Company's
Common Stock on a fully diluted basis (675,700 shares) at a purchase price of
$3.00 per share (the "Wilstar Options"). All of these options are exercisable.
On April 24, 1996, the Board of Directors revised the Wilstar Management
Agreement to accelerate the vesting of Wilstar's Performance Options so that
Wilstar was immediately vested in its right to purchase up to 20% of the
Company's fully diluted Common Stock. Wilstar agreed to relinquish its rights
to purchase up to an additional 2.5% of the Company's fully diluted stock
pursuant to the Wilstar Performance Options. Wilstar exercised the Wilstar
Performance Options in full on April 25, 1996 and purchased 1,674,739 shares.
The Company accounted for this transaction as a non-cash charge to earnings of
$4,567,000,
The Wilstar Management Agreement further provides that Wilstar and the
Group each have the right to elect two members of the Company's Board of
Directors.
Effective for services rendered on and after June 1, 1997, the Compensation
Committee and the Board of Directors amended the Wilstar Management Agreement by
the adoption of two amendments, designated, respectively, the Second Amendment
and the Third Amendment. The changes to the Wilstar Management Agreement made
by the Second Amendment include (i) extension of the specified term of the
Wilstar Management Agreement to May 31, 2000; (ii) modification of the existing
provision of the Wilstar Management Agreement for automatic extension of its
term for an additional year for each year after fiscal year 1997 in which the
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<PAGE>
Company achieves specified levels of pre-tax earnings; (iii) increase in the
annual base compensation of Wilstar from $400,000 to $550,000; (iv) provision
for an annual cost-of-living increase in base compensation after fiscal year
1998; and (v) increase in the annual performance bonus percentage payable to
Wilstar based on the Company's earnings before interest, taxes, depreciation and
amortization above specified levels from 10% to 15% of such earnings in excess
of $10,000,000.
The Wilstar Management Agreement was further amended by the Third
Amendment, subject to the approval of stockholders of the Company. For a
discussion of the Wilstar Management Agreement as amended by the Third
Amendment, see "Approval of Third Amendment to Wilstar Management Agreement"
above.
Ms. Warren, the president of the Company, is employed pursuant to a three-
year agreement expiring May 30, 1998 which provides for a salary at an annual
rate of $325,000 from June 1, 1996 to May 31, 1998. Ms. Warren could earn
bonuses in Fiscal 1998 ranging from 10% of her salary up to $175,000 based upon
the Company's earnings before interest and taxes. The agreement gives the
Company the right to terminate Ms. Warren's employment without cause at any
time. If the Company exercises such right it must pay Ms. Warren $162,500.
COMPENSATION IN LIEU OF DIVIDENDS PLAN
During the fiscal year ended May 31, 1997, the Board of Directors adopted a plan
for compensation of officers of the Company, employees of the Company, and
Wilstar in lieu of cash dividends. If and when cash dividends are paid on
outstanding shares of common stock of the Company, compensation will be paid to
each plan participant in an amount equal to the cash dividends which would have
been paid on the vested option shares covered by stock options of the Company
held by such participant as if such shares had been purchased by such
participant prior to, and were outstanding and owned by such participant on, the
record date and the payment date for such cash dividend. The plan began on
January 15, 1997 and will terminate on December 31, 1998 or such earlier or
later date as may be determined by the Board of Directors. During the fiscal
year ended May 31, 1997, an aggregate of $391,850 was paid to participants in
the plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information with respect to certain transactions and relationships
between the Company and certain executive officers, directors and related
parties, see "Compensation Committee Interlocks and Insider Participation"
above.
REPORT OF EXECUTIVE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors makes this report on
executive compensation pursuant to Item 402 of Regulation S-K. Notwithstanding
anything to the contrary set forth in any of the Company's previous or
subsequent filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that might
incorporate prior or future filings, including this Proxy Statement, in whole or
in part, this report and the performance table which follows this report shall
not be reported by reference into any such filings, and such information shall
be entitled to the benefits provided in Item 402(a)(9) of Regulation S-K.
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<PAGE>
The Compensation Committee reviews the performance of the Chief Executive
Officer of the Company, makes recommendations to the Board of Directors as to
the compensation of the CEO and the other executive officers of the Company and
reviews compensation programs for any other key employee, including salary and
cash bonus levels and the stock option grants under the Incentive Stock Option
Plan.
Compensation Policies and Philosophy. The Company's executive compensation
policies are designed to attract, retain and reward executive officers who
contribute to the Company's success, to provide economic incentives for
executive officers to achieve the Company's business objectives by linking the
executive officers' compensation to the performance of the Company, to
strengthen the relationship between executive pay and stockholder value and to
reward individual performance. The Company uses a combination of base salary,
cash bonuses and stock options to achieve these objectives.
In carrying out these objectives, the Compensation Committee considers a
number of factors which include the types of compensation paid to executive
officers in similar positions by comparable companies in the same industry. In
addition, the Compensation Committee evaluates corporate performance by looking
at factors such as performance relative to the business environment, and the
success of the Company in meeting its financial objectives. The Compensation
Committee also reviews the individual performance of the Chief Executive Officer
and, as appropriate, approves the recommendations of the Chief Executive Officer
relating to the performance of the other executive officers and their ability to
perform their given tasks, knowledge of their jobs, and their ability to work
with others toward the achievement of the Company's goals.
Components of Compensation. Executive officer salaries are established in
relation to a range of salaries for comparable positions among companies of
comparable size and complexity with the exception of the Chief Executive
Officer, whose services are provided by Wilstar pursuant to the terms of the
Wilstar Management Agreement. The Company seeks to pay its executive officers
salaries that are commensurate with the qualifications, duties and
responsibilities that are competitive in the marketplace. In making its annual
salary recommendation, the Compensation Committee looks at the Company's
financial position and performance and the overall contribution of the executive
officers as a group during the prior fiscal year in helping to meet the
Company's financial and business objectives. The Compensation Committee
recommends and approves any changes to the original and amended Wilstar-Cherokee
Management Agreement. However, Mr. Margolis did not participate as a member of
the Committee in issues relating to the Wilstar Management Agreement. The
Compensation Committee also makes recommendations on a range of salary changes
for the other executive officers as well.
Executive officer annual cash bonuses are used to provide executive
officers with financial incentives to meet annual performance targets of the
Company or its operating divisions, The Compensation Committee believes that
equity ownership by executive officers provides incentives to build shareholder
value and align the interests of the executive officers with the shareholders.
The Compensation Committee believes that equity ownership by executive officers
provides incentives to build shareholder value and align the interests of the
executive officers with the shareholders. The Compensation Committee believes
that these grants provide incentives for executive officers to stay with the
Company. Stock options have value only if the price of the Company's common
stock increases over the exercise/grant price. The size of the option grants
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<PAGE>
is usually based upon factors such as comparable equity compensation offered by
other companies, the seniority of the executive officer and the contribution
that the executive officer is expected to make to Cherokee. In determining the
size of the periodic grants, the Compensation Committee also considers prior
grants to the executive officer and his or her expected contributions during the
succeeding fiscal year.
Compensation of the Chief Executive Officer. The Compensation Committee
reviews the performance of the chief executive officer of the Company, as well
as other executives of the Company, annually. On May 4, 1995, the Company and
Wilstar entered into the Wilstar Management Agreement pursuant to which Wilstar
agreed to provide executive management services to the Company by providing the
services of Robert Margolis as Chief Executive Officer. The management fees to
Wilstar were determined based on a consideration of the various factors
discussed above, including the performance of the Company, the individual
performance of Mr. Margolis and Mr. Margolis' performance compared to various
objective and subjective goals established by the Board of Directors.
For a discussion of the Wilstar Management Agreement as amended through the
Third Amendment and the reasons for the Third Amendment, see "Approval of Third
Amendment to Wilstar Management Agreement" and "Employment Contracts and
Management Agreements" above for a further description of the Wilstar Management
Agreement and the Third Amendment.
Respectfully submitted,
Compensation Committee
Robert Margolis (through June 13, 1997)
Jeffrey Schultz
Douglas Weitman (through June 13, 1997)
Jess Ravich (after June 12, 1997)
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16 of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities to file
various reports with the Securities and Exchange Commission ("SEC"). The SEC
rules also require that copies of these filings be furnished to the Company.
Based solely on its review of copies of such reports received and written
representations from certain reporting persons, the Company believes that it
complied with all Section 16(a) filing requirements applicable to its officers,
directors and ten percent (10%) stockholders during the fiscal year ended May
31, 1997.
COMMON STOCK PERFORMANCE GRAPH
The Company has reorganized under Chapter 11 of the Bankruptcy Code twice
since June of 1993. As a result of the 1993 and 1994 Chapter 11
reorganizations, holders of the Company's then outstanding common stock received
approximately 8% and 1.6% of the reorganized Company's common stock,
respectively. Accordingly, the holder of 1000 shares of the Company's then
outstanding common stock during the quarter ended May 29, 1993 which shares
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<PAGE>
traded as high as $.875 per share during such period would now have the right to
less than one share of Common Stock of the Company. As described above, the
Company's Chapter 11 reorganizations in 1993 and 1994 essentially diluted the
Company's then outstanding common stock to a fraction of its value prior to such
reorganizations thereby making stock performance comparisons with the trading
price of the then outstanding common stock of the Company or other comparable
companies during such periods meaningless.
Due to the nature of the Company's business being that of a licensor of its
Cherokee brand to wholesalers and retailers, which put this brand on various
product categories including but not limited to footwear, apparel, accessories,
watches, eye wear, home textile products and sporting goods, the Company does
not believe that a comparable peer group of publicly traded licensing companies
exists; hence, the Company's return on investment was compared to the S&P 100-
LTD and NASDAQ INDEX COMPOSITE.
The graph on the following page compares the cumulative total shareholder
return on the Company's Common Stock with the cumulative total return on the
NASDAQ INDEX COMPOSITE and the S&P 100-LTD for the period commencing June 27,
1995 (the date the Form 10 on the new Common Stock became effective) and ending
on May 30, 1997. The data set forth below assumes the value of an investment in
the Company's Common Stock and each Index was $100 on June 27, 1995 and the
reinvestment of any dividends.
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<PAGE>
Comparison of Total Return*
Since June 27, 1995
AMONG CHEROKEE INC., THE NASDAQ INDEX COMPOSITE AND
THE S & P 100-LT
TOTAL SHAREHOLDER RETURNS
-------------------------
(DIVIDENDS REINVESTED)
<TABLE>
<CAPTION>
ANNUAL RETURN PERCENTAGE
YEARS ENDING
COMPANY / INDEX MAY96 MAY97
- -----------------------------------------------------
<S> <C> <C>
CHEROKEE INC/DE 136.67 11.20
S&P 100-LTD 26.93 30.60
NASDAQ INDEX COMPOSITE 34.45 12.57
</TABLE>
<TABLE>
<CAPTION>
INDEXED RETURNS
BASE YEARS ENDING
PERIOD
COMPANY / INDEX 27 JUN95 MAY96 MAY97
- -----------------------------------------------------
<S> <C> <C> <C>
CHEROKEE INC/DE 100 236.67 263.17
S&P 100-LTD 100 126.93 165.78
NASDAQ INDEX COMPOSITE 100 134.45 151.36
</TABLE>
* Please note that the price of Common Stock set forth in the graph reflects
the $0.60 per share dividend which was paid on May 30, 1996,
the $0.15 per share dividend which was paid on March 17, 1997 and
the $0.20 per share dividend which was paid on May 30, 1997.
INDEPENDENT PUBLIC ACCOUNTANTS
On May 30, 1995 the Company engaged Coopers & Lybrand L.L.P. ("Coopers") to
serve as its principal independent accountant to audit its financial statements
commencing for the year ended June 3, 1995. A representative of Coopers is
expected to attend the Annual Meeting, with an opportunity to make a statement
if such representative desires to do so, and will be available to answer
questions, if any, from stockholders.
OTHER MATTERS
ADDITIONAL INFORMATION
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED MAY 31, 1997, (INCLUDING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES, BUT EXCLUDING EXHIBITS) AS FILED WITH
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THE SECURITIES AND EXCHANGE COMMISSION ARE AVAILABLE UPON WRITTEN REQUEST FROM
THE OFFICE OF INVESTOR RELATIONS, CHEROKEE INC., 6835 VALJEAN AVENUE, VAN NUYS,
CA 91406.
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Any proposal relating to a proper subject which a stockholder may intend to
be presented for action at the next Annual Meeting of Stockholders must be
received by the Company no later than April 16, 1998, to be considered for
inclusion in the proxy material to be disseminated by the Board in accordance
with the provisions of Rule 14a-(8)(3)(i) promulgated under the Exchange Act.
Copies of such proposals should be sent to the Corporate Secretary at the
Company's principal executive offices. To be eligible for inclusion in such
proxy materials, such proposals must conform to the requirements set forth in
Rules under the Exchange Act.
OTHER BUSINESS OF THE MEETING
The Board is not aware of any matter to be presented at the Annual Meeting
or any postponement or adjournment thereof which is not listed on the Notice of
Annual Meeting and discussed above. If other matters should properly come
before the meeting, however, the persons named in the accompanying proxy will
vote all proxies in accordance with the recommendation of the Board, or if no
such recommendation is given, in their own discretion.
COST OF SOLICITING PROXIES
The Company will bear the cost of proxy solicitation for the election of
the Board's nominees for director. In addition to the use of the mail, proxies
may be solicited by personal interview, telephone or telegraph, by officers,
directors and other employees of the Company, who will not receive any
additional compensation for such services. The Company may also elect to engage
a proxy solicitation firm to assist in the soliciting of proxies. The Company
does not anticipate that the costs of such proxy solicitation firm would exceed
$10,000, plus its out of pocket fees and expenses. The Company will also
request persons, firms and corporations holding shares in their names, or in the
names of their nominees, which are beneficially owned by others, to send or
cause to be sent proxy materials to, and obtain proxies from, such beneficial
owners and will reimburse such holders for their reasonable expenses in so
doing.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Carol A. Gratzke
CAROL A. GRATZKE
SECRETARY
LOS ANGELES, CALIFORNIA
DATED: AUGUST 14, 1997
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<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CHEROKEE INC.
1997 ANNUAL MEETING OF STOCKHOLDERS, SEPTEMBER 15, 1997
The undersigned hereby appoints Robert Margolis and Keith Hull, and each
of them, proxies for the undersigned with full power of substitution, to
vote all of the shares which the undersigned is entitled to vote, with all
powers the undersigned would possess if personally present at the 1997
Annual Meeting of Stockholders of Cherokee Inc. (including all
adjournments thereof) to be held at The Sportsmen's Lodge and Hotel, 12825
Ventura Boulevard, Studio City, California, on September 15, 1997 at 10:00
A.M. Pacific Time, on all matters that may come before the Meeting.
The undersigned hereby instructs said proxies or their substitutes:
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS: [_] To VOTE FOR all nominees listed below. [_] To WITHHOLD AUTHORITY to vote
for all nominees listed below.
</TABLE>
Robert Margolis, Timothy Ewing, Jeffrey Schultz, Douglas Weitman, Jess
Ravich, Keith Hull, Avi Dan
Instructions: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.
2. AMENDMENT OF MANAGEMENT AGREEMENT: Approval of the Third Amendment to
the Wilstar Management Agreement between The Newstar Group and Cherokee
Inc. (the "Amendment").
<TABLE>
<S> <C> <C>
[_] To VOTE FOR [_] To VOTE AGAINST [_] To ABSTAIN with regard to
approval of the approval of the approval of the
Amendment Amendment Amendment
</TABLE>
3. DISCRETIONARY AUTHORITY: In their discretion, the proxies are
authorized to vote with respect to all other matters which may properly
come before the Meeting.
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
STOCKHOLDER. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF DIRECTORS AND FOR THE APPROVAL OF THE AMENDMENT TO THE MANAGEMENT
AGREEMENT.
The undersigned hereby revokes any proxies heretofore given, and
ratifies and confirms that all the proxies appointed hereby, or either of
them, or their substitute or substitutes may lawfully do or cause to be
done by virtue thereof. The undersigned hereby acknowledges receipt of a
copy of the Notice of Annual Meeting of Stockholders and Proxy Statement,
both dated August 14, 1997, and a copy of the Company's Annual Report on
Form 10-K for the year ended May 31, 1997.
Dated: , 1997 -------------------------
-------------------------
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