<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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 (S) 240.14a-11(c) or (S) 240.14a-12
CHEROKEE INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(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):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] 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:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
CHEROKEE INC.
6835 Valjean Avenue
Van Nuys, California 91416
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 31, 2000
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of the Stockholders of
Cherokee Inc. will be held at the Palisades Salon in the Loews Santa Monica
Beach Hotel, 1700 Ocean Avenue, Santa Monica, California, on May 31, 2000 at
10:00 A.M. (Pacific Time) for the following purposes:
1. To elect five directors to the Board of Directors who will serve until
the 2001 Annual Meeting of Stockholders of Cherokee Inc. and until their
successors have been duly elected and qualified; and
2. To transact such other business as may be properly brought before the
meeting or any postponement or adjournment thereof.
Stockholders of record at the close of business on April 24, 2000 will be
entitled to notice of and to vote at the annual meeting or any adjournments
thereof. A list of stockholders entitled to vote at the annual meeting will be
available for examination by any stockholder for any purpose germane to the
annual meeting during normal business hours for ten days prior to the annual
meeting at the Loews Santa Monica Beach Hotel.
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
Van Nuys, California
May 2, 2000
IMPORTANT
Whether or not you expect to attend the annual meeting in person, please
complete, date, sign, and return the enclosed proxy card in the enclosed
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 annual meeting.
<PAGE>
CHEROKEE INC.
6835 Valjean Avenue
Van Nuys, California 91406
----------------
PROXY STATEMENT
2000 ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 31, 2000
----------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Cherokee Inc., a Delaware corporation ("Cherokee" or
"Company"), of proxies to be used at the 2000 Annual Meeting of Stockholders to
be held at the Palisades Salon in the Loews Santa Monica Beach Hotel, 1700
Ocean Avenue, Santa Monica, California, on May 31, 2000 at 10:00 A.M. (Pacific
Time) and at any adjournments or postponements thereof. A form of the proxy is
enclosed for use at the annual meeting. Stockholders are being asked to vote
upon the election of five directors to the Board of Directors and to transact
such other business as may properly come before the annual meeting. The
approximate date on which this Proxy Statement and form of proxy are being
mailed to the stockholders is May 5, 2000.
Record Date, Outstanding Shares and Voting
The Board of Directors of the Company has fixed April 24, 2000, as the
record date to determine stockholders entitled to notice of and to vote at the
annual meeting. As of the record date, there were 8,480,705 outstanding shares
of common stock of the Company held by approximately 154 holders of record.
Each stockholder of record at the close of business on April 24, 2000 is
entitled to one vote for each share of common stock of the Company then held on
each matter to come before the meeting, or any adjournments or postponements
thereof.
Quorum and Voting Requirements
A majority of the votes eligible to be cast at the annual meeting by holders
of common stock of the Company, or 4,240,353 votes, represented in person or by
proxy at the annual meeting, is required for a quorum. Under Delaware law,
shares represented by proxies that reflect abstentions or "broker non-votes"
will be counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. Broker non-votes are shares held by a
broker or nominee, which are represented at the meeting but with respect to
which such broker or nominee is not empowered to vote on a particular proposal.
Directors will be elected by a favorable vote of a plurality of the shares of
voting stock present and entitled to vote, in person or by proxy, at the annual
meeting. Accordingly, abstentions or broker non-votes as to the election of
directors will not affect the election of the candidates receiving the
plurality of votes. The nominees receiving the five highest number of votes
will become directors. Votes that are withheld from any nominee will be
excluded from the vote and will have no effect. No other proposals are expected
to be presented at the annual meeting. However, most other proposals, such as a
proposal to postpone or adjourn the annual meeting, must receive the favorable
vote of a majority of the shares of common stock represented and entitled to
vote, in person or by proxy, at the annual meeting. Abstentions as to such
other proposals will have the same effect as votes against the proposals.
Broker non-votes, however, will be treated as unvoted for purposes of
determining approval of such proposals and will not be counted as votes for or
against such other proposals. Under the rules that govern brokers, brokers that
have record ownership of shares have the authority to vote on certain "routine"
matters even when they have not received instructions from the beneficial
owners of such shares. 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.
1
<PAGE>
Voting and Revocation of Proxies
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 of Directors, and
as recommended by the Board of Directors 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 of Directors'
director nominees.
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 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 required to so notify the Secretary of the
Company prior to the time of the meeting.
Security Ownership of Principal Stockholders
The following table sets forth information regarding the beneficial
ownership of common stock of the Company as of April 24, 2000 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. Under the rules of the Securities and
Exchange Commission, in calculating percentage ownership, each holder is deemed
to beneficially own any shares subject to options exercisable by the holder
within sixty days of April 24, 2000, but options owned by others are deemed not
to be outstanding shares even if the options are exercisable within sixty days.
Percentage ownership is based on 8,480,705 shares of common stock outstanding
on April 24, 2000.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership of Class
------------------- -------------------- ----------
<S> <C> <C>
Timothy Ewing............................. 2,057,246(1) 24.2%(1)
2200 Ross Avenue
Suite 4660 West
Dallas, TX 75201
Value Partners, Ltd....................... 2,028,169 23.9%
C/O Ewing & Partners
4514 Cole Avenue
Suite 808
Dallas, TX 75205
Robert Margolis........................... 1,565,952(2) 18.5%(2)
6835 Valjean Avenue
Van Nuys, CA 91406
The Newstar Group, Inc.................... 718,541(3) 8.5%(3)
dba The Wilstar Group
6835 Valjean Avenue
Van Nuys, CA 91406
</TABLE>
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(1) Includes 2,028,169 shares held directly by Value Partners, Ltd. Mr. Ewing
is managing partner of Ewing & Partners, which is the general partner of
Value Partners, Ltd. Mr. Ewing expressly disclaims beneficial ownership of
such shares.
(2) Includes 718,541 shares owned by The Newstar Group, Inc. d/b/a The Wilstar
Group ("Wilstar"). Mr. Margolis is the sole shareholder of Wilstar.
(3) Does not include 847,411 shares individually held by Mr. Margolis.
2
<PAGE>
Security Ownership of Management
The following table sets forth information regarding the beneficial
ownership of common stock of the Company as of April 24, 2000, by each director
and nominee for director, the Chief Executive Officer and each of the four
other most highly compensated executive officers of the Company as of January
29, 2000, 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. Under the rules of the Securities and
Exchange Commission, in calculating percentage ownership, each holder is deemed
to beneficially own any shares subject to options exercisable by the holder
within sixty days of April 24, 2000, but options owned by others are deemed not
to be outstanding shares even if the options are exercisable within sixty days.
Percentage ownership is based on 8,480,705 shares of common stock outstanding
on April 24, 2000.
<TABLE>
<CAPTION>
Amount and
Nature
of Beneficial Percentage
Name of Beneficial Owner Ownership of Class
------------------------ ------------- ----------
<S> <C> <C>
Robert Margolis (1) ................................ 1,565,952 18.5%
Douglas Weitman (2) ................................ 274,397 3.2%
Jess Ravich (2) .................................... 33,316 *
Keith Hull (2) ..................................... 33,277 *
Timothy Ewing(3).................................... 2,057,246 24.2%
Dave Mullen......................................... * *
Carol Gratzke (4) .................................. 159,244 1.9%
Howard Siegel (5)................................... 131,179 1.5%
Steven Ascher (6)................................... 40,000 *
Oliver Wood (7)..................................... 10,000 *
All Executive Officers and
directors as a group (8)............................ 4,304,611 49.0%
</TABLE>
- --------
* = less than 1%
(1) Includes 847,411 shares held individually by Mr. Margolis, 5000 shares
which may be purchased pursuant to options that are currently exercisable
at an exercise price of $8.00 per share and 718,541 shares owned by
Wilstar. Mr. Margolis is the sole shareholder of Wilstar.
(2) Amounts for Mr. Weitman, Mr. Ravich and Mr. Hull include 10,000 shares
which may be purchased by each director pursuant to options that are
currently exercisable at exercise prices of either $10.50 or $8.00 per
share.
(3) Includes 5,000 shares which may be purchased pursuant to options that are
currently exercisable at an exercise price of $8.00 per share and 2,028,169
shares held directly by Value Partners, Ltd. Mr. Ewing is managing partner
of Ewing & Partners, which is the general partner of Value Partners, Ltd.
and, therefore, Mr. Ewing may be deemed to be the beneficial owner of such
shares.
(4) Includes 119,244 shares which may be purchased pursuant to options that are
or will be exercisable within sixty days of April 24, 2000, at various
exercise prices.
(5) Includes 96,913 shares which may be purchased pursuant to options that are
or will be exercisable within sixty days of April 24, 2000, at various
exercise prices.
(6) Includes 40,000 shares which may be purchased pursuant to options that are
or will be exercisable within sixty days of April 24, 2000, at various
exercise prices.
(7) Includes 10,000 shares which may be purchased pursuant to options that are
or will be exercisable within sixty days of April 24, 2000, at an exercise
price of $8.00 per share.
(8) Includes 306,157 shares which may be acquired pursuant to options that are
or will be exercisable within sixty days of April 24, 2000, at various
exercise prices.
3
<PAGE>
ITEM 1. ELECTION OF DIRECTORS
At the annual meeting, stockholders will be asked to elect five directors to
serve until the next annual meeting of stockholders and until their respective
successors are elected and qualified. Four incumbent directors have been
nominated for re-election for one-year terms. Mr. Weitman, who is an incumbent
director, is not standing for re-election and Mr. Mullen has been nominated in
his place. Both Mr. Margolis and Mr. Hull have been nominated pursuant to the
terms of a management agreement between Wilstar and the Company. See
"Employment and Management Agreements--Composition of the Board of Directors."
None of the nominees has any family relationship to any other nominee or to any
executive officer of the Company. Directors will be elected by a favorable vote
of a plurality of the shares of common stock present and entitled to vote, in
person or by proxy, at the annual meeting.
In the event that any nominee for director should become unavailable to
serve, it is intended that votes will be cast, pursuant to the enclosed proxy,
for such substitute nominee as may be nominated by the Board of Directors. The
Board of Directors 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. Each nominee has consented to being named in this
Proxy Statement as a nominee for election as director and has agreed to serve
as a director if elected.
<TABLE>
<CAPTION>
Principal Occupation for Past Five
Name, Age Years;
and Other Directorships;
Present Position with the Company Business Experience
--------------------------------- -------------------------------------
<C> <S>
Robert Margolis, 52 Mr. Margolis has been a director of
Director, Chairman of the Board the Company since May 1995. Mr.
of Directors and Chief Executive Margolis was appointed Chairman of
Officer the Board of Directors and Chief
Executive 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 of
Directors 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. Wilstar provides
Mr. Margolis' services as Chief
Executive Officer of the Company
pursuant to the terms of a management
agreement between Wilstar and the
Company. See "Employment and
Management Agreements."
Timothy Ewing, 39 Mr. Ewing has been a director of the
Director Company since September 1997. Mr.
Ewing, a Chartered Financial Analyst,
is the managing partner of Ewing &
Partners and manager of Value
Partners, Ltd., a private investment
partnership formed in 1989. Mr. Ewing
is vice-chairman of the board of
directors of First Fidelity Bancorp,
Inc. in Irvine, California, he sits
on the board of directors of
Harbourton Financial Corporation in
McLean, Virginia and is on the board
of trustees of the Carolco Pictures
Liquidating Trust. In addition, he is
on the board of directors of the
Baylor Health Care System Foundation
and The Dallas Opera, and the
governing board of the Dallas Museum
of Natural History.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Name, Age Principal Occupation for Past Five Years;
and Other Directorships;
Present Position with the Company Business Experience
--------------------------------- -----------------------------------------
<C> <S>
Dave Mullen, 65 Mr. Mullen, who for more than five years
Director nominee was the President and CEO of Robinson's-
May in North Hollywood, California,
retired from The May Department Stores in
July 1999. He joined The May Department
Stores in March 1988 and from March 1988
to June 1988 was President and CEO of
Goldwater's in Phoenix, Arizona. From
June 1988 to January 1991 he was
President and CEO of Filene's in Boston,
Massachusetts, and in January 1991 became
the President and CEO of Robinson's-May
in North Hollywood.
Jess Ravich, 42 Mr. Ravich has been a Director of the
Director Company since May 1995. Mr. Ravich has
been the Chairman and Chief Executive
Officer of the U.S. Bancorp Libra, a
division of U.S. Bancorp Investments,
Inc., a registered broker-dealer since
January 1999. From June 1991 to January
1999, he was the Chairman and Chief
Executive Officer and the majority
shareholder of Libra Investments, Inc., a
registered broker-dealer he founded which
merged with US Bancorp Investments, Inc.
in January 1999. Mr. Ravich is on the
board of directors of Communication
Intelligence Corporation.
Keith Hull, 47 Mr. Hull has been a director since June
Director 1995. For more than five years, Mr. Hull
has been President of Avondale Fabrics
and Corporate Vice President of its
parent, Avondale Mills Inc. Avondale
Mills is a diversified manufacturer of
textiles.
</TABLE>
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 of Directors is not involved in day-to-
day operations. During the fiscal year ended January 29, 2000 ("Fiscal 2000")
the Board of Directors met three times. Each director attended at least 75% of
all Board of Directors and applicable committee meetings during Fiscal 2000.
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 2000, the Audit Committee consisted of three non-employee
directors, Mr. Hull, Mr. Ewing and Mr. Ravich. The Audit Committee met once
during this period. It is expected that after the annual meeting Mr. Mullen
will replace Mr. Ewing on the Audit Committee.
Compensation Committee
The Company's compensation program for executives is administered by the
Compensation Committee of the Board of Directors. Until September 1999, the
Compensation Committee consisted of Mr. Ravich, Mr. Ewing and Mr. Weitman.
After September 1999, the Compensation Committee consisted of Mr. Ravich, Mr.
Ewing and Mr. Hull, all of whom are non-employee directors and outside
directors within the meaning of Rule 16b-3 of the Securities Exchange Act of
1934, as amended, and Section 162(m) of the Internal Revenue
5
<PAGE>
Code, respectively. The Compensation 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 the Company's executives.
The Compensation Committee met three times during Fiscal 2000.
Compensation Committee Interlocks and Insider Participation
Except for Mr. Margolis, who is a director and Chief Executive Officer of
the Company, as well as 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. The executive management services of Mr. Margolis as the Company's
Chairman of the Board and Chief Executive Officer are provided pursuant to a
management agreement between Wilstar and the Company. See "Employment and
Management Agreements."
Directors' Remuneration and Stock Options
For their services on the Board of Directors during Fiscal 2000, each non-
employee director was paid a retainer fee of $15,000 per annum. The fees are
paid on a quarterly basis. On June 14, 1999, each director was granted options
to purchase 5,000 shares of common stock with an exercise price equal to the
fair market value of such stock on the date of grant. The options are
immediately exercisable, expire ten years from the date of grant and contain
cashless exercise and antidilution provisions. The options generally terminate
three months after a director ceases to serve on the Board of Directors unless
such director ceases to serve as a result of death or disability, in which case
the options terminate one year after the director ceases to serve on the Board
of Directors. None of the directors exercised options during Fiscal 2000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR EACH OF THE DIRECTORS NOMINATED IN ITEM 1
6
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table(/1/)
The following table includes information concerning annual and long-term
compensation earned by the Chief Executive Officer and the other four most
highly compensated executive officers of the Company as of January 29, 2000
(collectively, the "Named Executive Officers"), for services rendered during
each of the Company's last three fiscal years.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation(2)
--------------------------------- --------------
Securities All Other
Name and Principal Fiscal Salary Bonus Underlying Compensation(3)
Position Year $ $ Options # $
------------------ ------ --------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Robert Margolis ........ 2000 $ 590,367(4) $1,776,084(4) 5,000 $1,890,624(6)
Chairman and Chief 1999 550,000(4) 1,459,842(4) 5,000 ---
Executive Officer 1998 366,667(4)(5) 320,601(4) 8,277 2,000
Carol Gratzke........... 2000 150,000 169,089 -- --
Chief Financial Officer 1999 150,000 122,323 10,000 39,748
1998 100,000(5) 57,061 148,992 2,000
Howard Siegel........... 2000 150,000 169,089 -- --
President-Operations 1999 150,000 122,323 30,000 28,971
1998 90,000(5) 50,648 115,884 583
Steven Ascher........... 2000 250,000 100,000 100,000 --
Executive Vice 1999 250,000 25,000 20,000 --
President 1998 48,077(7) -- -- --
Oliver Wood............. 2000 150,00(8) -- 30,000 --
Executive Vice
President
</TABLE>
- --------
(1) None of the Named Executive Officers earned Other Annual Compensation
during the period covered by the Summary Compensation Table, except for
perquisites which did not exceed the lesser of $50,000 or 10% of total
annual salary and bonus of such Named Executive Officer, and as a result,
the corresponding column was omitted. Additionally, none of the Named
Executive Officers received restricted stock awards or long-term incentive
plan payouts during the period covered by the Summary Compensation Table
and, as a result, the corresponding columns were omitted.
(2) Amounts shown include cash and non-cash compensation earned by Named
Executive Officers; no amounts earned were deferred at the election of
those officers.
(3) Represents payments made in accordance with a compensation in lieu of
dividend plan which was in effect from January 15, 1997 to December 31,
1998. Under the plan, when cash dividends were paid on outstanding shares
of common stock of the Company, each plan participant received an amount
equal to the cash dividends that would have been paid on shares issuable
under vested stock options of the Company held by such participant, had
such participant exercised such options prior to, and owned the shares
issuable under such options on, the record date and payment date for such
cash dividend.
(4) The executive management services of Mr. Margolis as the Company's Chairman
of the Board and Chief Executive Officer are provided pursuant to a
management agreement between Wilstar and the Company. See "Employment and
Management Agreements." Mr. Margolis is the sole stockholder of Wilstar.
Under the management agreement, Wilstar is eligible to receive both base
compensation and annual cash bonuses for providing management services. In
Fiscal 2000, Fiscal 1999 and the eight months ended January 31, 1998,
Wilstar received $590,367, $550,000 and $366,667, respectively, in annual
base compensation. The base compensation amount for Fiscal 2000 includes a
retroactive cost of living increase. In Fiscal 2000, Fiscal 1999 and the
eight months ended January 31, 1998, bonuses of $1,776,084, $1,459,842 and
$320,601, respectively, were accrued for Wilstar. See "Employment and
Management Agreements" below for a further description of the management
agreement between Wilstar and the Company.
7
<PAGE>
(5) Adjusted to reflect salary for the eight-month period ending January 31,
1998.
(6) Pursuant to the terms of the management agreement, the Company forgave and
cancelled approximately $1.89 million of the principal amount of a
Promissory note, dated December 23, 1997 made by Mr. Margolis in favor of
the Company.
(7) Steven Ascher joined the Company as Executive Vice President on November 1,
1997, and therefore the 1998 salary amount represents a partial year.
(8) Oliver Wood joined the Company as Executive Vice President on March 1,
1999, and therefore the 2000 salary amount represents a partial year.
Option Grants in Last Fiscal Year
Set forth below is further information on grants of stock options during
Fiscal 2000 to the Named Executive Officers.
<TABLE>
<CAPTION>
Potential
Realizable Value
Percentage at Assumed
of total Annual Rates of
Number of Options Stock Price
Securities Granted to Exercise Appreciation for
Underlying Employees or Base Option Term (2)
Options in Fiscal Price Expiration -----------------
Name Granted(1) # 2000 ($/Share) Date 5% 10%
---- ------------ ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert
Margolis....... 5,000(3) 3.7% $8.00 6-14-09 $ 25,156 $ 63,750
Carol Gratzke... -- -- -- -- -- --
Howard Siegel... -- -- -- -- -- --
Steven Ascher... 33,333(4) 24.7% 7.75 5-27-09 162,462 411,712
Steven Ascher... 33,333(4) 24.7% 8.52 5-27-09 136,795 386,045
Steven Ascher... 33,334(4) 24.7% 9.38 5-27-09 108,132 357,390
Oliver Wood..... 30,000(5) 22.2% 8.00 2-04-09 150,934 382,498
</TABLE>
- --------
(1) All option grants were made pursuant to the Company's 1995 Incentive Stock
Option Plan, as amended. Under the plan, in the event of a liquidation,
merger, reorganization, or consolidation of the Company with any other
corporation in which the Company is not the surviving corporation or the
Company becomes a wholly-owned subsidiary of another corporation, each
option granted under the plan, to the extent not fully exercised, will be
cancelled unless the surviving corporation in any such merger,
reorganization or consolidation elects to assume the options or to grant
substitute options in place thereof. Notwithstanding the foregoing, vested
options will remain exercisable until the date of any such liquidation,
merger, reorganization, or consolidation and any unvested options will
become exercisable for a ten-day period ending on the fifth day immediately
preceding any such liquidation, merger, reorganization or consolidation.
(2) The actual value, if any, a Named Executive Officer may realize will depend
on the excess of the stock price over the exercise price on the date the
option is exercised. There is no assurance the value realized by the Named
Executive Officer will be at or near the value shown.
(3) On June 14, 1999, each director, including Mr. Margolis, received an award
of 5,000 options to purchase Company common stock. The exercise price of
each option is $8.00 per share, which equals the fair market value of the
Company's common stock on the date of grant. The options are immediately
exercisable, expire ten years from the date of grant and contain cashless
exercise and antidilution provisions. The options will generally terminate
three months after Mr. Margolis ceases to serve on the Board of Directors
unless he ceases to serve as a result of death or disability, in which case
the options terminate one year after he ceases to serve on the Board of
Directors.
(4) On May 27, 1999, Mr. Ascher received an award of 100,000 options to
purchase Company common stock. Such options become exercisable in three
installments of 33,333, 33,333 and 33,334, on the first, second and third
anniversaries of the date of the grant, respectively. The exercise price of
each option in the first
8
<PAGE>
installment is $7.75 per share (which equals the fair market value of the
Company's common stock on the date of grant), in the second installment is
$8.52 per share and in the third installment is $9.38 per share. The
options are exercisable ten years from the date of grant and contain
cashless exercise and antidilution provisions. The options generally
terminate three months after Mr. Ascher's employment with the Company is
terminated, unless his employment is terminated as a result of his death or
disability, in which case the options terminate one year after his
employment is terminated.
(5) On February 16, 1999, Mr. Wood received an award of 30,000 options to
purchase Company common stock. Such options become exercisable in three
installments of 10,000 each, on the first, second and third anniversaries
of the date of the grant. The exercise price of each option is $8.00 per
share, which equals the fair market value of the Company's common stock on
the date of grant. The options are exercisable ten years from the date of
grant and contain cashless exercise and antidilution provisions. The
options generally terminate three months after Mr. Wood's employment with
the Company is terminated, unless his employment is terminated as a result
of his death or disability, in which case the options terminate one year
after his employment is terminated.
Option Exercises and Fiscal Year End Values
Set forth below is certain information concerning exercised and unexercised
options to purchase common stock granted both in Fiscal 2000 and prior years
to the Named Executive Officers, and held by them at January 29, 2000. During
Fiscal 2000, none of the Named Executive Officers exercised any options.
<TABLE>
<CAPTION>
$ Value of
Shares Number of Unexercised In-the-Money Options at
acquired on Value Options at January 29, 2000 January 29, 2000(1)
Exercise Realized ------------------------------ -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert Margolis......... -- $-- 5,000 -- $-- $--
Carol Gratzke........... -- -- 119,244 39,748 -- --
Howard Siegel........... -- -- 96,913 48,971 -- --
Steven Ascher........... -- -- 6,667 113,332 -- --
Oliver Wood............. -- -- 10,000 20,000 -- --
</TABLE>
- --------
(1) The value of unexercised in-the-money options at FY-end was calculated
based on the market value of the underlying securities, minus the exercise
price, and assumes the sale of the underlying securities on January 28,
2000 at a price of $7.25 per share, which was the closing price of the
Company's common stock on the NASDAQ National Market System on that date.
Employment and Management Agreements
The Company has not entered into employment agreements with any of the
Named Executive Officers. Wilstar provides the executive management services
of Mr. Margolis as the Company's Chairman of the Board and Chief Executive
Officer pursuant to a management agreement between Wilstar and the Company.
The parties originally entered into a management agreement on May 4, 1995,
which was subsequently amended several times (the "Original Management
Agreement"). As of November 29, 1999, Wilstar and the Company entered into the
Revised Management Agreement which revises and restates in one document the
current terms under which Wilstar has agreed to continue to provide executive
management services to Cherokee. Robert Margolis is currently the sole
stockholder of Wilstar.
Base Compensation and Performance Bonuses. As its base compensation for
services rendered under the Revised Management Agreement, Wilstar will be paid
$587,450 per fiscal year. Wilstar's base compensation is subject to an annual
cost of living increase each year after Fiscal 2000.
9
<PAGE>
Wilstar is also eligible for annual performance bonuses. Section 3.2 of the
Revised Management Agreement provides that if the Company's consolidated pre-
tax earnings during the fourth quarter of Fiscal 2000 were no less than
$1,674,710, then Wilstar would receive a performance bonus equal to (x) 10% of
the Company's EBITDA for Fiscal 2000 in excess of $2.5 million, plus (y) 15% of
the Company's EBITDA during Fiscal 2000 in excess of $10.0 million. Subject to
meeting the $1,674,710 threshold, the Company also agreed to forgive
approximately $1.89 million of the principal amount of the Promissory Note,
dated December 23, 1997, made by Mr. Margolis in favor of the Company. The
Revised Management Agreement provides that for purposes of determining if the
$1,674,710 threshold was met, any portion of the Promissory Note that is
forgiven will not reduce the calculation of the Company's consolidated pre-tax
earnings for the fourth quarter of Fiscal 2000. The Company's consolidated pre-
tax earnings during the fourth quarter exceeded the $1,674,710 threshold as
calculated pursuant to the Revised Management Agreement. As a result, the
Company will pay Wilstar a bonus of $1.78 million and forgive approximately
$1.89 million of the principal amount of the Promissory Note. The payments and
loan cancellation have been accrued for in the Company's financial statements
for Fiscal 2000.
Section 3.3 of the Revised Management Agreement provides that, for each
fiscal year after Fiscal 2000, if the Company's EBITDA for such fiscal year is
no less than $5.0 million, then Wilstar will receive a performance bonus equal
to (x) 10% of the Company's EBITDA for such fiscal year in excess of $2.5
million up to $10.0 million, plus (y) 15% of the Company's EBITDA for such
fiscal year in excess of $10.0 million.
In all cases, EBITDA will be determined in accordance with U.S. generally
accepted accounting principles and will be reduced by all accrued compensation
expenses attributable to any compensation paid or payable to Wilstar under the
Revised Management Agreement, including, but not limited to, the performance
bonuses provided for under Sections 3.2 and 3.3 and base compensation payable
to Wilstar, but will not be reduced by any portion of the Promissory Note that
is forgiven and cancelled.
Initial Term and Extensions. The initial term of the Revised Management
Agreement terminates on February 2, 2002. If Cherokee's consolidated pre-tax
earnings, as set forth in its audited financial statements for any of its
fiscal years during the term of the Revised Management Agreement, commencing
with Fiscal 2000: (a) are no less than 80% of the consolidated pre-tax earnings
contained in the budget submitted to and approved by the Compensation Committee
for such fiscal year, and (b) are also no less than the consolidated pre-tax
earnings for the immediately preceding fiscal year, then the termination date
of the Revised Management Agreement will automatically be extended an
additional year. Pursuant to the terms of the Revised Management Agreement, for
purposes of determining whether the foregoing tests are met, the Company's
consolidated pre-tax earnings will not be reduced by any portion of the
Promissory Note that is forgiven and cancelled. There may be any number of such
extensions if the foregoing tests are met on multiple occasions. During Fiscal
2000, the foregoing tests were met and therefore the term of the Revised
Management Agreement has been extended to February 1, 2003.
Composition of the Board of Directors. If the Company's board is comprised
of five directors, the Company will use its commercially reasonable best
efforts to ensure (a) that one director is nominated by Wilstar (the "Wilstar
Director"); (b) that one director (the "Investor Director") is nominated by the
members of the group, other than Mr. Margolis, that filed Schedule 13-Ds, dated
April 24, 1995, with respect to the purchase of the Company's common stock
(collectively, the "Outside Investors"); and (c) that three directors are
nominated by the non-Wilstar non-Investor Directors (the "Other Directors"). If
there are seven directors, the Company will use its commercially reasonable
best efforts to ensure that a second Investor Director is nominated by Outside
Investors and four directors are nominated by the Other Directors. If there are
nine directors, the Company will use its commercially reasonable best efforts
to ensure that, in addition to the Wilstar Director and the Investor Directors
described above, one director is nominated by Wilstar and the Outside Investors
together (the "Wilstar/Investor Director") and five directors are nominated by
the Other Directors. If the Board of Directors is expanded, the Company will
use its commercially reasonable best efforts to ensure that Wilstar is able to
maintain its proportionate representation. The Company will use its
commercially reasonable best efforts to ensure that the Board of Directors will
have an audit and a compensation committee, each of which will be comprised of
three members, one of whom shall be an Investor
10
<PAGE>
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.
In addition to the events of termination described below under the title
"Events of Termination," Wilstar may elect to treat the following events
relating to the composition of the Board of Directors as a breach of the
Revised Management Agreement by the Company:
. the size of the Board of Directors is increased or decreased without
Wilstar's maintaining or increasing its proportionate representation;
. the Wilstar Director, the Investor Directors or the Wilstar/Investor
Director, as applicable, are not elected to the Board of Directors or
are not put on the slate of directors recommended to the Company's
stockholders or any such director is removed from the Board of Directors
without Wilstar's prior approval; or
. without Wilstar's consent, Mr. Margolis is not elected Chairman of the
Board.
Events of Termination. Wilstar may terminate the Revised Management
Agreement if the Company materially breaches any of the terms and conditions of
the Revised Management Agreement or fails to perform its material obligations
thereunder. Unless initiated or consented to by Wilstar or Mr. Margolis, the
occurrence of any of the following will be deemed to be a material breach of
the Revised Management Agreement:
. the assignment to Mr. Margolis of any duties materially inconsistent
with, or the diminution of Mr. Margolis' positions, titles, offices,
duties and responsibilities with the Company or any removal of Mr.
Margolis from, or any failure to re-elect Mr. Margolis to, any titles,
offices or positions held by Mr. Margolis under the Revised Management
Agreement, including the failure of the Board of Directors to elect Mr.
Margolis or Wilstar's designee as Chairman of the Board or the failure
to elect, or the removal of, any Wilstar or Outside Investor nominee as
director from the slate of directors recommended to the Company's
stockholders by the Board of Directors;
. except as in accordance with the Revised Management Agreement, a
reduction by the Company in the base compensation or any other
compensation provided for in the Revised Management Agreement;
. a change or relocation of Mr. Margolis' offices at the Company that
materially and adversely affects Mr. Margolis' working environment; or
. any other substantial, material and adverse changes in Mr. Margolis'
working conditions imposed by the Company.
The Board of Directors may terminate the Revised Management Agreement at any
time without cause. If appropriate, the Board of Directors may also terminate
the Revised Management Agreement "for cause." "For cause" is limited to the
willful misfeasance or gross negligence on the part of Wilstar or Mr. Margolis
in connection with the performance of their duties pursuant to the Revised
Management Agreement, which willful misfeasance or gross negligence directly
causes material harm to the assets, business or operations of the Company. The
Revised Management Agreement will terminate immediately upon Mr. Margolis'
death and may be terminated by the Board of Directors if Wilstar fails to
render services to the Company for a substantially continuous period of six
months because of Mr. Margolis' physical or mental disability during such
period.
Payments to Wilstar if the Revised Management Agreement is Terminated. If
the Revised Management Agreement is terminated for any reason by either the
Company or Wilstar, the Company will:
. pay Wilstar's base compensation through the date of termination;
. reimburse Mr. Margolis for all expenses incurred through the date of
termination;
. provide ongoing indemnification for Mr. Margolis and Wilstar and ongoing
insurance coverage comparable to the insurance offered to other
terminated directors, officers or employees of the Company; and
11
<PAGE>
. pay Wilstar any unpaid performance bonuses earned pursuant to Sections
3.2 or 3.3 during the fiscal year in which the Revised Management
Agreement is terminated; unpaid performance bonuses will be calculated
using the results of the whole fiscal year during which the Revised
Management Agreement is terminated, but will be pro rated for the number
of full months occurring in such fiscal year prior to the date of
termination.
In addition to the payments and other compensation described above, if the
Company terminates the Revised Management Agreement without cause or Wilstar
terminates the Revised Management Agreement after Cherokee materially breaches
any of the terms and conditions thereof or fails to perform its material
obligations thereunder, the Company will pay Wilstar, within 60 calendar days
after the date of termination, a lump sum in cash equal to three times the sum
of (a) Wilstar's base compensation at the rate in effect at the time of the
termination and (b) the "Previous Performance Bonus." The "Previous Performance
Bonus" means an amount equal to the performance bonus received by Wilstar under
Sections 3.2 or 3.3 of the Revised Management Agreement and, if applicable,
Section 3.2 of the Original Management Agreement in the Company's last full
fiscal year ending prior to the date of termination.
Cap on Payments Contingent on a Change in Control. If the Company's
accountants determine that any payments to Wilstar or Mr. Margolis under the
Revised Management Agreement would result in the non-deductibility of some or
all of such payments under Section 280G of the Code, the payments to Wilstar
and Mr. Margolis will be reduced to the maximum amount that is payable without
causing such payments to be nondeductible by the Company.
Certain Relationships and Related Transactions
On December 23, 1997 the Company loaned $2.0 million to Robert Margolis, who
is a Director, the Chairman of the Board of Directors and the Chief Executive
Officer of the Company. The loan was approved by a majority of the
disinterested members of the Company's Board of Directors on December 19, 1997.
Mr. Margolis executed a Promissory Note, dated December 23, 1997, in favor of
the Company for $2.0 million which yields 6.0% interest per annum, and which
has been recorded as a reduction to stockholders' equity on the Company's
January 29, 2000 balance sheet. Under the terms of the Revised Management
Agreement, $1.89 million of the principal amount of the Promissory Note will be
forgiven. The remaining principal amount of the Promissory Note and all accrued
interest thereon, approximately $121,000, is due and payable on December 23,
2002. The note may be repaid in whole or in part at any time without penalty.
Steven Ascher, the Executive Vice President of the Company, holds 41.9%
beneficial ownership in Sideout Sport Inc. In November 1997, the Company signed
an agreement with Sideout Sport Inc. with an initial payment of $1.5 million.
During Fiscal 2000, per the terms of the agreement, the Company made payments
totaling $757,000 to Sideout Sport Inc.
On May 11, 1999 the Company loaned $100,000 to Mr. Ascher. Mr. Ascher
executed a note, dated May 11, 1999, in favor of the Company for $100,000,
which yields 6.0% interest per annum. The principal amount of the note and all
accrued interest thereon is due and payable on May 11, 2001. The note may be
repaid in whole or in part at any time without penalty. Upon the termination of
Mr. Ascher's employment for any reason, the entire principal amount of the note
and all accrued interest thereon will become due and payable. As of April 29,
2000, approximately $77,000 remained outstanding under the note from Mr.
Ascher.
For information with respect to other transactions and relationships between
the Company and certain executive officers, directors and related parties, see
"Compensation Committee Interlocks and Insider Participation" and "Employment
and Management Agreements" above.
12
<PAGE>
Report of the Compensation Committee
The following Report of the Compensation Committee of the Board of Directors
covering Fiscal 2000 and the performance graph that follows are included herein
pursuant to Item 402 of Regulations S-K. Notwithstanding anything to the
contrary set forth in any of the Company's previous filings under the
Securities Act of 1933, as amended (the "Securities Act"), or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the information
contained in this report and the performance graph that follows shall not be
deemed "soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference, in whole
or in part, into any future filing under the Securities Act or Exchange Act,
and such information shall be entitled to the benefits provided in Item
402(a)(9) of Regulation S-K.
General. The Compensation Committee of the Board of Directors is currently
composed of three non-employee directors, Mr. Ewing, Mr. Ravich and Mr. Hull.
The Compensation Committee reviews the performance of the Chief Executive
Officer whose services are provided pursuant to the Revised Management
Agreement with Wilstar, and when appropriate makes recommendations to the Board
of Directors as to the terms of the Revised Management Agreement. As
appropriate, the Compensation Committee reviews and approves the
recommendations of the Chief Executive Officer regarding compensation for other
executive officers, including salary and cash bonus levels and the stock option
grants under the Company's 1995 Incentive Stock Option Plan, as amended. The
Company only has five executive officers and fourteen total employees.
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 and financial 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,
among others, the following factors concerning the individual performance of
executive officers: (1) their ability to perform their given tasks; (2) their
knowledge of their jobs; and (3) their ability to work with others toward the
achievement of the Company's goals. 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 business and
financial objectives. Additionally, as demand for highly skilled and
experienced executives has increased due to lower overall unemployment rates
and competition with start-up companies, it has become increasingly important
for the Company to offer an attractive overall compensation package in order to
attract, retain and reward executive officers.
The Compensation Committee has reviewed the impact of Section 162(m) of the
Internal Revenue Code which limits the deductibility of certain otherwise
deductible compensation in excess of $1 million paid to the Chief Executive
Officer and the next four most highly compensated executive officers. It is the
policy of the Compensation Committee to attempt to have all compensation
treated as tax-deductible compensation wherever, in the judgment of the
Compensation Committee, to do so would be consistent with the objectives of the
compensation plan under which the compensation is paid. However, this policy
does not rule out the ability to make awards or to approve compensation that
may not qualify for the compensation deduction, if there exists sound corporate
reasons for so doing.
Components of Compensation. The annual base compensation and performance
bonuses payable to Wilstar in return for providing the executive management
services of Mr. Margolis as the Company's Chairman of the Board and Chief
Executive Officer are governed by the Revised Management Agreement. See
"Employment and Management Agreements" above. The Company seeks to pay its
other executive officers salaries that are commensurate with their
qualifications, duties and responsibilities and that are competitive in
13
<PAGE>
the marketplace. In reviewing and approving the Chief Executive Officer's
recommendations regarding the annual salaries of the other executive officers,
the Compensation Committee considers the individual and corporate performance
factors outlined above, and puts particular emphasis on the success of the
Company in meeting its business and financial objectives and the overall
contribution of each executive officer in helping to meet those objectives.
For Fiscal 2000, a bonus pool equal to approximately 4% of the Company's
EBITDA in excess of $2.5 million was established. All fourteen of the Company's
employees participated in the bonus pool. Ms. Gratzke and Mr. Siegel were each
entitled to 25% of the bonus pool, and the Chief Executive Officer allocated
the remainder of the bonus pool among the other twelve employees based upon
their individual performance during Fiscal 2000. This approach is designed to
motivate the Company's employees to meet the business and financial objectives
of the Company because the bonuses are tied to the profitability of the
Company.
The Company's 1995 Incentive Stock Option Plan authorizes the Compensation
Committee to grant employees stock options. Stock options are granted under the
plan with exercise prices equal to or above the fair market price of the
Company's common stock on the date of grant and generally vest in annual
installments over two or three years. Since stock options have value only if
the price of the Company's common stock increases over the exercise price, the
Compensation Committee believes that stock option grants to executive officers
provide incentives for executive officers to build stockholder value and
thereby align the interests of the executive officers with the stockholders.
The Compensation Committee also believes that these grants, which may vest over
a period of two or more years, provide incentives for executive officers to
remain with the Company. In determining the numbers of options granted in any
fiscal year, the Compensation Committee considers factors such as comparable
equity compensation offered by other companies, the seniority of the executive
officer, the contribution that the executive officer is expected to make to the
Company and the size of prior grants to the executive officer.
Compensation of the Chief Executive Officer. Until November 1999,
compensation to Wilstar in return for providing the services of Mr. Margolis as
Chief Executive Officer was governed by the Original Management Agreement
between Wilstar and the Company that was entered into on May 4, 1995. Wilstar
is wholly-owned by Mr. Margolis. Among other things, under the Original
Management Agreement Wilstar was eligible for annual base compensation of
$565,000, plus cost of living increases, and annual cash performance bonuses
based on a percentage of the Company's EBITDA over certain thresholds.
On November 29, 1999, Wilstar and the Company entered into the Revised
Management Agreement, which was approved by both the Compensation Committee and
the disinterested members of the Board of Directors. The material terms of the
Revised Management Agreement are summarized above under the section titled
"Employment and Management Agreements." The terms of the Revised Management
Agreement resulted from several months of negotiations between Wilstar and the
Company. The primary basis for the Compensation Committee's determination to
approve the terms of the Revised Management Agreement was to retain the
services of Mr. Margolis as Chairman of the Board and Chief Executive Officer
of the Company and to provide a strong incentive for him to continue to
increase the long-term value of the Company for its stockholders. Under Mr.
Margolis' leadership, the Company's revenues have grown from approximately
$8.7 million in the fiscal year ended May 31, 1997 to approximately $24.7
million in Fiscal 2000, an increase of over 184% during that time period. Mr.
Margolis' performance is further highlighted by the performance graph on the
next page, which covers Mr. Margolis' tenure as Chief Executive Officer since
the Company emerged from bankruptcy and compares the Company's stock
performance with the stock performance of other companies, as measured by broad
market indices.
Under the Revised Management Agreement Wilstar's base compensation was
adjusted to account for cost of living increases but otherwise remained
unchanged. The method of calculating annual cash performance bonuses remained
substantially the same. However, the receipt of such bonuses was made subject
to the
14
<PAGE>
attainment of certain performance goals designed to generally qualify such
bonuses as "qualified performance-based compensation" under Section 162(m) of
the Revenue Code of 1986, as amended. The Revised Management Agreement also
provided for the forgiveness of approximately $1.89 million in principal amount
of a Promissory Note made by Mr. Margolis in favor of the Company, if certain
performance goals were achieved. The provisions of the Revised Management
Agreement regarding the annual cash performance bonus, the forgiveness of a
portion of the Promissory Note, and the performance goals related thereto, were
submitted to and approved by the stockholders of the Company in January 2000.
The performance goals were achieved in Fiscal 2000 and, as a result, the
Company will pay Wilstar a cash bonus of $1.78 million and forgive
approximately $1.89 million of the principal amount of the Promissory Note.
Respectfully submitted,
Compensation Committee
Mr. Timothy Ewing
Mr. Jess Ravich
Mr. Keith Hull
15
<PAGE>
Common Stock Performance
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 and Sideout brands to wholesalers and retailers, which put this brand
on various product categories including but not limited to footwear, apparel,
accessories, watches, eyewear, 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 below 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 January 29,
2000. 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. The data set
forth below also assumes the reinvestment of all dividends, including, but not
limited to, the $5.50 per share dividend which was paid on January 15, 1998.
Comparison of Total Return
Since June 27, 1995
AMONG CHEROKEE INC., THE NASDAQ COMPOSITE AND THE S & P 100-LTD
<TABLE>
<CAPTION>
27 Jun. 1995 Jan. 1996 Jan. 1997 Jan. 1998 Jan. 1999 Jan. 2000
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cherokee Inc............ 100 127.10 264.04 516.56 580.90 552.05
S&P 100-Ltd............. 100 119.47 154.37 190.60 264.13 314.63
NASDAQ Index Composite.. 100 115.69 151.00 177.98 276.46 435.99
</TABLE>
16
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act 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 and the National Association of
Securities Dealers concerning their holdings of, and transactions in,
securities of the Company. The Securities and Exchange Commission rules also
require that copies of these filings be furnished to the Company.
To the Company's knowledge, based solely on its review of copies of such
reports received or written representations from certain reporting persons that
no other reports were required during Fiscal 2000, all Section 16(a) filing
requirements applicable to its officers, directors and ten percent (10%)
stockholders were met during Fiscal 2000.
INDEPENDENT PUBLIC ACCOUNTANTS
Since May 30, 1995, the Company has engaged PricewaterhouseCoopers LLP,
formerly Coopers & Lybrand L.L.P., to serve as its principal independent
accountant to audit its financial statements.
OTHER MATTERS
Additional Information
Copies of the Company's Annual Report on Form 10-K for Fiscal 2000,
including financial statements and financial statement schedules, as filed with
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 2001 Annual Meeting
Any proposal relating to a proper subject which a stockholder may intend to
be presented for action at the 2001 Annual Meeting of Stockholders must be
received by the Company no later than January 2, 2001, to be considered for
inclusion in the proxy material to be disseminated by the Board of Directors in
accordance with the provisions of Rule 14a(8)(e)(1) 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 Regulation 14A under the Exchange Act.
In addition, if the Company has not received notice on or before March 22,
2001 of any matter a stockholder intends to propose for a vote at the 2001
Annual Meeting, then a proxy solicited by the Board of Directors may be voted
on such matter in the discretion of the proxy holder, without a discussion of
the matter in the proxy statement soliciting such proxy and without such matter
appearing as a separate matter on the proxy card.
Other Business of the Meeting
The Board of Directors 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 of Directors, or if no such recommendation is given, in their own
discretion.
17
<PAGE>
Cost of Soliciting Proxies
The expense of soliciting proxies and the cost of preparing, assembling and
mailing material in connection with the solicitation of proxies will be paid by
the Company. 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 has retained U.S. Stock Transfer Corporation to
assist in soliciting proxies with respect to shares of common stock held of
record by brokers, nominees and institutions. The Company does not anticipate
that the costs of such proxy solicitation firm will 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
Van Nuys, California
May 2, 2000
18
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CHEROKEE INC.
2000 Annual Meeting of Stockholders, May 31, 2000
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 2000 Annual Meeting of
Stockholders of Cherokee Inc. (including all adjournments thereof) to be held
at the Loews Santa Monica Beach Hotel, 1700 Ocean Avenue, Santa Monica,
California, on May 31, 2000 at 10:00 A.M. Pacific Time, on all matters that may
come before the Annual Meeting.
The undersigned hereby instructs said proxies or their substitutes:
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS: [_] To VOTE FOR all nominees [_] To WITHHOLD AUTHORITY to
listed below. vote for all nominees
listed below.
</TABLE>
Robert Margolis, Timothy Ewing, David Mullen, Jess Ravich, Keith Hull
Instructions: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.
-----------------------------------------------------------------------------
2. DISCRETIONARY AUTHORITY: In their discretion, the proxies are
authorized to vote with respect to all other matters which may properly
come before the Annual 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.
The undersigned hereby revokes any proxies heretofore given by the
undersigned to vote at the Annual Meeting of Stockholders or any adjournment
thereof. The undersigned hereby acknowledges receipt of a copy of the Notice of
Annual Meeting of Stockholders and Proxy Statement, both dated May 2, 2000, and
a copy of the Company's Annual Report on Form 10-K for the fiscal year ended
January 29, 2000.
Dated: ______________ , 2000 -----------------------------
_____________________________
Signature(s)
Note: Your signature should
appear the same as your name
appears hereon. In signing
as attorney, executor,
administrator, trustee or
guardian, please indicate
the capacity in which
signing; when signing as
joint tenants, all parties
in the joint tenancy must
sign. When a proxy is given
by a corporation, it should
be signed by an authorized
officer and the corporate
seal affixed. No additional
postage is required if
mailed within the United
States.
