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.          )

 

 

 

 

 

CHEROKEE INC.

5990 Sepulveda Boulevard, Suite 600

Sherman Oaks, California 91411

October ___, 2017

To my fellow stockholders,

You are invited to attend a special meeting of stockholders (the “Special Meeting”) of Cherokee Inc. (“Cherokee”), to be held on November 28, 2017, at 8:00 a.m. (Pacific Time) at Cherokee’s corporate headquarters, located at 5990 Sepulveda Boulevard, Suite 600, Sherman Oaks, California 91411.

The business to be conducted at the Special Meeting is set forth in the formal notice of special meeting of stockholders and proxy statement that accompany this letter.

Your vote is important. Whether or not you plan to attend the Special Meeting, please vote as soon as possible. You are urged to vote your shares electronically through the Internet or by telephone or by completing, signing and returning the paper proxy card enclosed with the proxy statement for the Special Meeting. Voting on the Internet or by telephone will eliminate the need to return a paper proxy card.

Thank you for your ongoing support of and continued interest in Cherokee

 

 

CHEROKEE INC.

5990 Sepulveda Boulevard, Suite 600

Sherman Oaks, California 91411

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On November 28, 2017

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders (the “Special Meeting”) of Cherokee Inc. (“Cherokee”) will be held at Cherokee’s corporate headquarters, located at 5990 Sepulveda Boulevard, Suite 600, Sherman Oaks, California 91411, on November 28, 2017 at 8:00 a.m. (Pacific Time) for the following purposes:

Stockholders of record at the close of business on October 5, 2017 will be entitled to notice of and to vote at the Special Meeting or any postponement or adjournment thereof. A list of stockholders entitled to vote at the Special Meeting will be available for examination by any stockholder for any purpose germane to the Special Meeting at our principal executive offices during normal business hours for 10 days prior to the Special Meeting.

Cherokee’s Board of Directors urges each stockholder to read carefully the accompanying proxy statement.

 

Sherman Oaks, California

October ___, 2017

CHEROKEE INC.

5990 Sepulveda Boulevard, Suite 600

Sherman Oaks, California 91411

PROXY STATEMENT

SPECIAL MEETING OF STOCKHOLDERS

To Be Held On November 28, 2017

TABLE OF CONTENTS

 

 

 

 

CHEROKEE INC.

5990 Sepulveda Boulevard, Suite 600

Sherman Oaks, California 91411

PROXY STATEMENT

SPECIAL MEETING OF STOCKHOLDERS

To Be Held On November 28, 2017

GENERAL INFORMATION

This proxy statement (the “Proxy Statement”) and all related proxy materials are being furnished in connection with the solicitation by the Board of Directors (the “Board” or the “Board of Directors”) of Cherokee Inc., a Delaware corporation (“Cherokee”, the “Company”, “we”, “us” or “our”), of proxies to be used at a special meeting of stockholders to be held at our corporate headquarters, located at 5990 Sepulveda Boulevard, Suite 600, Sherman Oaks, California 91411, on November 28, 2017, at 8:00 a.m. (Pacific Time) and any adjournment or postponement thereof (the “Special Meeting”). Stockholders are being asked to vote at the Special Meeting on the following proposals:

This Proxy Statement summarizes the information you need to know in order to vote on these proposals in an informed manner.

Delivery of Proxy Materials

In accordance with rules and regulations adopted by the Securities and Exchange Commission (the “SEC”), we have elected to deliver our proxy materials for the Special Meeting, including this Proxy Statement and a proxy card for the Special Meeting, to our stockholders by mail or, if a stockholder has previously agreed, by e-mail. Accordingly, we expect to mail or, to stockholders who have agreed, e-mail this Proxy Statement and our other proxy materials to our stockholders on or about October ___, 2017. If you would like to receive our proxy materials for future meetings of our stockholders by e-mail rather than by mail, you may submit such consent to electronic delivery by writing to the attention of our Corporate Secretary at the address of our principal executive offices.

In addition, we are also making all of our proxy materials for the Special Meeting available on the Internet. Applicable SEC rules require us to notify our stockholders of the availability of prior proxy materials on the Internet with the following notice:

 

 

Record Date, Outstanding Shares

Our Board of Directors has fixed October 5, 2017 as the record date to determine the stockholders entitled to notice of and to vote at the Special Meeting. As of the record date, there were 13,950,020 shares of common stock outstanding.

Voting Matters

Voting Rights

Except as described below, each of our stockholders is entitled to one vote for each share of common stock held as of the record date for the Special Meeting on each matter to come before the Special Meeting.

Notwithstanding the foregoing, in accordance with applicable NASDAQ guidance, the 947,870 shares of our common stock that have been issued pursuant to the Purchase Agreements and are outstanding as of the record date for the Special Meeting will not be entitled to vote on the issuance of shares of our common stock pursuant to the Purchase Agreements, in an aggregate amount equal to 20% or more of our common stock outstanding before entry into the Purchase Agreements (Proposal 1) or to certain of our directors and officers (Proposal 2). As a result, a total of 13,002,150 shares of our common stock are entitled to vote on Proposal 1 and Proposal 2 at the Special Meeting.

Quorum Requirement

We will have the required quorum to conduct the business of the Special Meeting if holders of a majority of the outstanding shares of our common stock as of the record date and entitled to vote at the Special Meeting are present in person or represented by proxy at the Special Meeting. Pursuant to our amended and restated bylaws (“Bylaws”) and applicable Delaware law, shares represented by proxies that reflect abstentions or “broker non‑votes,” discussed below, are counted as shares that are present for purposes of determining the presence of a quorum. However, as described below, we do not expect broker non-votes to occur at the Special Meeting, and as a result, no such votes will be counted as present for purposes of determining the presence of a quorum at the Special Meeting.

Effect of Not Providing Voting Instructions; Broker Non-Votes

If you are a stockholder of record and you submit a valid proxy that is not revoked before your shares are voted at the Special Meeting and that does not provide voting instructions with respect to your shares, all shares represented by your proxy will be voted in accordance with the recommendation of the Board of Directors on each proposal to be presented at the Special Meeting, as described in this Proxy Statement.

If you hold your shares in “street name” (that is, your shares are held by a broker or other nominee on your behalf as the beneficial owner, but are not held in your name), it is critical that you provide voting instructions to your broker or other nominee if you want your vote to count on any of the proposals to be voted on the Special Meeting.  All of these proposals constitute “non‑routine” matters on which a broker or other nominee is not entitled to vote shares held for a beneficial owner without receiving specific voting instructions from the beneficial owner. In general, if you hold your shares in street name and you do not instruct your broker on how to vote on a non-routine matter, then no vote would be cast on such proposals on your behalf and a “broker non-vote” would occur. For the Special Meeting, however,

there are no proposals to be voted on that constitute “routine” matters on which a broker or other nominee would be entitled to vote shares held for a beneficial owner without receiving voting instructions from the beneficial owner. As a result, because brokers or other nominees will not be entitled to vote uninstructed shares on any proposal at the Special Meeting, we do not expect any broker non-votes to occur ,and no such shares will be counted as present for purposes of establishing a quorum. We encourage you to submit your voting instructions to your broker or other nominee as soon as possible to ensure that your shares of common stock are voted at the Special Meeting!

Voting Requirements

The issuance of shares of our common stock pursuant to the Purchase Agreements, in an aggregate amount equal to 20% or more of our common stock outstanding before entry into the Purchase Agreements (Proposal 1) and to certain of our directors and officers (Proposal 2), must each be approved by the affirmative vote of a majority of the votes cast on the proposal by shares present in person or represented by proxy at the Special Meeting and entitled to vote on the proposal.  As a result, abstentions, if any, will have no effect on the outcome of the votes on Proposal 1 or Proposal 2. The adjournment of the Special Meeting, if necessary or appropriate (Proposal 3), must be approved by the affirmative vote of a majority of the shares present in person or represented by proxy at the Special Meeting, even if less than a quorum. As a result, abstentions, if any, will have the same effect as a vote against Proposal 3.

Below is a summary of the voting requirements for each proposal to be voted on at the Special Meeting:

 

How to Vote

Stockholders of Record

You are a stockholder of record if, at the close of business on the record date for the Special Meeting, your shares were registered directly in your name with Computershare Trust Company, N.A., our transfer agent. If you are a stockholder of record, there are several ways for you to vote your shares, as follows:

If you are a stockholder of record entitled to vote at the Special Meeting, you may revoke your proxy at any time before it is voted at the Special Meeting by taking any one of the following actions:

Any new proxy card or written notice of revocation that is mailed to us must include the stockholder’s name and must be received prior to the Special Meeting to be effective, and any later‑dated vote submitted by telephone or on the Internet must be received by 11:59 p.m. Eastern Time on November 27, 2017 to be effective. Only your latest-dated vote that is received by the deadline applicable to each voting method will be counted.

Beneficial Owners

You are a beneficial owner of shares held in street name if, at the close of business on the record date for the Special Meeting, your shares were held by a broker, or other nominee and not in your name. As the beneficial owner, you have the right to direct your broker or nominee how to vote your shares by following the voting instructions your broker or other nominee provides. If you are a beneficial owner of your shares, you should receive voting instructions from the broker or other nominee that holds your shares, and you should follow those instructions in order to direct your broker or other nominee on how to vote your shares. The availability of telephone and Internet voting will depend on the voting processes of your broker or other nominee. If you are a beneficial owner of shares held in street name, you may vote your shares in person at the Special Meeting only if you obtain a legal proxy from the broker or other nominee holding your shares giving you the right to vote the shares.

If your shares are held in street name, you should follow the instructions provided by your broker or other nominee regarding how to revoke a previously submitted proxy.

Attending the Special Meeting

All stockholders that owned our common stock at the close of business on the record date for the Special Meeting, or their duly appointed proxies, may attend the Special Meeting.  Even if you plan to attend the Special Meeting in person, we recommend that you also submit your proxy card or vote by telephone or on the Internet by the applicable deadline, to ensure that your vote will be counted. Please see “How to Vote” above for voting instructions.

If you attend the Special Meeting in person, you may be asked to present valid picture identification, such as a driver’s license or passport. Additionally, if you are a beneficial owner of shares held in street name, you must bring to the Special Meeting a copy of a brokerage statement reflecting your ownership of our common stock as of the record date, so that we may identify you as a stockholder of our Company.

Submitting your vote prior to the Special Meeting will not affect your right to vote at the Special Meeting should you decide to attend; however, your attendance at the Special Meeting after having submitted a valid proxy will not in and of itself constitute a revocation of your proxy. In order to do so, you will be required to give oral notice of your intention to vote in person to the inspector of elections of the Special Meeting and submit a completed ballot at the Special Meeting reflecting your new vote.

Solicitation of Proxies

The expense of soliciting proxies and the cost of preparing, printing, assembling and mailing materials in connection with the solicitation of proxies will be paid by Cherokee. In addition to the use of the mail, proxies may be solicited by personal interview, telephone or e‑mail by our officers, directors and other employees, who will not receive any additional compensation for these services. We have not engaged employees for the specific purpose of soliciting proxies or a proxy solicitation firm to assist us in soliciting proxies, but we may elect to engage and pay the cost of such

employees or such a proxy solicitation firm at any time. In addition, we will request persons, firms and corporations holding shares in their names or in the names of their nominees that are beneficially owned by others to send or cause to be sent proxy materials to, and obtain proxies from, such beneficial owners, and we will reimburse such holders for their reasonable expenses in so doing.

Householding

To reduce the expenses of delivering duplicate materials to our stockholders, we are delivering one copy of our proxy materials for the Special Meeting, including this Proxy Statement and the Annual Report, to multiple stockholders who share the same address, unless we have received contrary instructions from a stockholder. Upon our receipt of a written or oral request, we will deliver promptly, at no charge, a separate copy of this Proxy Statement or the Annual Report to any stockholder at a shared address to which we have delivered a single copy of any of these documents. Additionally, stockholders who share an address and receive a single copy of this Proxy Statement or the Annual Report may request to receive multiple copies of any of these documents for future meetings of our stockholders, and stockholders who share an address and receive multiple copies of this Proxy Statement or the Annual Report may request to receive a single copy of any of these documents for our future meetings of stockholders. Any such requests should be directed to us by calling (818) 908‑9868 or by writing to Investor Relations at the address of our principal executive offices.

Where You Can Find More Information About Cherokee

Stockholders can find additional information about Cherokee, including information about our business and certain corporate governance information, on our website at cherokeeglobalbrands.com. The Company also makes available on its website its annual reports on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and amendments to these reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. You may read and copy any document we file with the SEC at the SEC’s public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at (800) SEC‑0330 for further information on the public reference facilities. Our SEC filings are also available to the public at the SEC’s web site at www.sec.gov. The information on our website is not incorporated by reference into this proxy statement.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Proxy Statement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995, and are intended to be covered by the safe harbor provided for under these sections. These statements may include words such as “believe,” “estimate,” “project,” “intend,” “expect,” “plan,” “anticipate,” and similar expressions in connection with any discussion of the timing or nature of future circumstances or events, including the terms of any future equity financings we may pursue; the impact of any such financings on our performance, financial condition and liquidity; and our ability to maintain compliance with the obligations of our outstanding debt instruments.

Forward-looking statements reflect only our current views, expectations and assumptions regarding these future events and our future performance. As a result, our forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results or events to differ materially from the future results or events expressed, projected, or implied by the forward-looking statements we make. These risks, uncertainties and other factors include the following: (i) competitive conditions in our industry; (ii) risks related to the retail business that impact the retailers that license and/or sell our brands; (iii) changes in consumer demand for our brands, generally, in particular regions or among certain consumer groups;  (iv) our ability to maintain relationships with key licensees of our brands, or develop engagements with new licensees to replace any such relationships that terminate or expire; (v) our ability to implement our business strategies, including certain shifts in our licensing focus in recent periods; (vi) our ability to manage the various licensing and selling models that we utilize in our operations; (vii) our ability to identify, acquire and integrate into our portfolio new and promising brands; (viii) changes in general economic and market conditions; (ix) our ability to protect our trademarks and other intellectual property rights; (x) risks related to the level and terms and conditions of our indebtedness; (xi) risks associated with the global scope of our operations; (xii) collection and credit risks; (xiii) changes in rules and regulations applicable to us and our industry; and (xiv) the other factors described from time to time in our periodic reports and other filings with the SEC. As a result of these risks, uncertainties and other factors, you should not place undue reliance on the forward‑looking statements we make because some or all of them could turn out to be wrong.

All forward-looking statements we make in this Proxy Statement speak only as of the date of this Proxy Statement, and we disclaim any intent or obligation to update publicly any of these forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. All forward-looking statements in this Proxy Statement are qualified in their entirety by this cautionary statement.

THE FINANCINGS

General

The Purchase Agreements

As previously reported in our Current Report on Form 8‑K filed with the SEC on August 14, 2017, on  August 11, 2017, we entered into the Purchase Agreements with several investors, including certain of our directors and officers, to effect certain equity financings. We refer to these equity financings collectively as the “Financings”.  The form of the Purchase Agreements and certain other agreements related thereto are filed as exhibits to such Current Report on Form 8‑K. See “General—Where You Can Find More Information About Cherokee” above to learn how you can access this report and these agreements.

Background and Reasons for the Financings

We have established a senior secured credit facility with Cerberus Business Finance, LLC (“Cerberus”),  pursuant to which we have borrowed $45.0 million under a term loan facility and $5.0 million under a revolving credit facility. As a result of our failure to comply with certain financial and reporting covenants under the credit facility as of the end of the first quarter of our current fiscal year, on August 11, 2017, we and Cerberus entered into an amendment to the credit facility that includes a waiver of such compliance failures and amends certain other terms, including relaxing certain of our financial covenants and adding a new liquidity covenant. This new liquidity covenant obligates us to maintain certain specified levels of unrestricted cash on-hand, and also required, as a condition to effectiveness of the credit facility amendment, that we complete an equity financing for net cash proceeds of $4.0 million and obtain contractual commitments for additional equity financings for net cash proceeds of up to $5.5 million if the new liquidity covenant is not satisfied at any time on or before March 5, 2018.

Our Board of Directors determined that it was advisable and in our best interest and in the best interest of our stockholders to enter into the Purchase Agreements and effect the Financings in order to comply with these requirements of our credit facility with Cerberus.  We intend to use the net proceeds from the Financings for general corporate purposes, including working capital and other general and administrative purposes.

Completed Financing

Pursuant to the Purchase Agreements, on  August 17, 2017, the investors party thereto purchased, and we issued and sold, an aggregate of 947,870 shares of our common stock in a private placement financing at a per share purchase price of $4.22 and for net cash proceeds to us of approximately $4.0 million (the “Completed Financing”).

Committed Financings

Also pursuant to the Purchase Agreements, certain of the investors party thereto have agreed to participate in certain future equity financings, as follows: if we notify any such investor on or before March 5, 2018 of a failure to meet the new liquidity covenants required by our credit facility with Cerberus, then such investor will, subject to certain conditions and caps, be obligated to purchase in a private placement financing additional shares of our common stock as we request at a per share purchase price equal to the lower of $4.22, 90% of the average closing price of our common stock for the 20 days before the date of our notification to such investor, or the closing price of our common stock on the day before the date of our notification to such investor (such financings, the “Committed Financings”). The maximum aggregate value of the commitments from all investors for the Committed Financings is approximately $5.5 million.

In consideration for the agreement of these investors to participate in the Committed Financings, on August 17, 2017, we issued to such investors warrants to purchase up to an aggregate of 326,695 shares of our common stock at an exercise price of $4.22 (collectively, the “Warrants”). The Warrants are exercisable at any time from March 5, 2018 until the seven-year anniversary of their initial issuance date, may be exercised in cash or on a “cashless” basis, and are subject to customary adjustments in the event of stock dividends or other distributions, stock splits, or mergers, reclassifications or similar transactions.

Investors Participating the Financings

The following table reflects the participation in the Completed Financing and the Committed Financings by the investors party to the Purchase Agreements:

Potential Effects of the Financings

Any issuance of shares of our common stock in the Committed Financings would result in dilution to our existing stockholders with respect to their ownership interest, voting power, earnings per share and book and market value per share. Additionally, sales in the public market of any shares of our common stock that may be issued in the Committed Financings, or the perception that any such sales could occur, could adversely affect the prevailing market price of our common stock, which could impair the ability of our existing stockholders to sell their shares, should they desire to do so, or our ability to raise funds in additional equity financings in the future, should we desire to do so. Further, the acquisition of additional shares by investors in the Committed Financings, particularly by the investors who are directors, officers or significant stockholders of our Company, could result in the establishment of, or changes in, control positions over our Company, which could subject us and our existing stockholders to risks if these investors have and pursue their own interests with respect to our Company. Moreover, as described above, the number of shares of our common stock that we may issue in the Committed Financings depends on the prevailing market price of our common stock at or near the time of any such financing, and as a result, the effects described above would be continually amplified if and to the extent the market price of our common stock declines and we seek to issue a greater number of shares in the Committed Financings in order to result in the desired amount of net proceeds.

To illustrate the impact of increases or decreases in the market price of our common stock on the number of shares we may issue in the Committed Financings, the table below shows the maximum number of shares of our common stock that could be issued to the investors in the Financings, assuming various prices per share for such

issuances (and assuming approval of Proposal 1 and Proposal 2 at the Special Meeting, as described further below). As of October 16, 2017, the closing price of our common stock as reported by NASDAQ was $2.20.

Reasons for Stockholder Approval

Our common stock is listed on the NASDAQ Global Select Market. As a result, we are subject to NASDAQ Listing Rules, including the following:

As described under “—Potential Effects of the Financings” above, if the price of our common stock declines, then we would be required to issue a greater number of shares in the Committed Financings in order to obtain the same amount of net proceeds. Consequently, we may seek to issue shares of our common stock in the Committed Financings at a price per share and in an amount that results in our issuance in the Financings of 20% or more of the number of shares outstanding as of immediately before entry into the Purchase Agreements, which was 13,002,150 shares and 20%

of which, less the number of shares previously issued in the Completed Financing, is 1,652,560 shares.  Such an issuance would require stockholder approval in order to comply with NASDAQ Listing Rule 5635(d).

 

In addition, as described under “—General—Committed Financings” above, the terms of the Purchase Agreements provide that the price per share at which we issue shares in any Committed Financing will depend on the market price of our common stock at or around the time of any such financing.  Consequently, the Purchase Agreements could permit us to issue shares of our common stock to certain of our directors who have agreed to participate in the Committed Financings at a price per share that is less than the market value of our common stock immediately before the time we entered into the Purchase Agreements,  which was $4.05 per share.  Such an issuance would require stockholder approval in order to comply with NASDAQ Listing Rule 5635(c).

As a result, our Board of Directors has determined that it is advisable and in our best interest and in the best interest of our stockholders to seek stockholder approval of issuances of our common stock in the Committed Financings under the terms described above, in order to ensure compliance with these NASDAQ Listing Rules while also affording us maximum flexibility in utilizing the Committed Financings to maintain compliance with the liquidity requirements of our credit facility with Cerberus. Importantly, we are not seeking the approval of our stockholders to authorize our entry into the Purchase Agreements, which has already occurred and which are binding obligations of our Company, to authorize the issuance and sale of shares of our common stock in the Completed Financing or our issuance of the Warrants, which has also already occurred, or to authorize the Committed Financings in general.  Rather, we are seeing stockholder approval of the issuance of shares of our common stock in the Committed Financings (1) in an amount that would, collectively with the shares issued in the Completed Financings, total 1,652,560 or more shares, and (2) to our directors who have agreed to participate in the Committed Financings, at a price below $4.05 per share.

PROPOSAL 1

APPROVAL OF THE ISSUANCE OF SHARES OF OUR COMMON STOCK PURSUANT TO THE PURCHASE AGREEMENTS IN AN AGGREGATE AMOUNT EQUAL TO 20% OR MORE OF OUR COMMON STOCK OUTSTANDING BEFORE ENTRY INTO THE PURCHASE AGREEMENTS

General

At the Special Meeting, our stockholders will be asked to approve the issuance of shares of our common stock in the Committed Financings such that the amount of shares issued in the Completed Financing and the Committed Financings collectively equals to 20% or more of the number of shares of our common stock outstanding immediately before entry into the Purchase Agreements, which, less the number of shares previously issued in the Completed Financing, is 1,652,560 shares.

The terms of, reasons for, and other aspects of the Purchase Agreements, the Committed Financings and the issuance of shares to be voted on in this Proposal 1, are described in detail in other sections of this Proxy Statement.

Certain Interests

As a result of their potential participation in the Committed Financings, Messrs. Galvin and Ravich, directors on our Board of Directors, have a direct interest in Proposal 1. See the description under “The Financings—Investors Participating in the Financings” above for more information.

Effects of Approving Proposal 1

If our stockholders approve Proposal 1, then we would seek an amendment to the Purchase Agreements to delete a provision therein that prohibits us from issuing in the Concurrent Financing and the Committed Financings, on a collective basis, a number of shares in excess of 19.9% of the total number of shares of our common stock outstanding as of immediately before entry into the Purchase Agreements. Pursuant to the Purchase Agreements, any amendment to the terms thereof could be made by the mutual agreement of the parties. In that event,  and assuming our stockholders also approve Proposal 2 as described in this Proxy Statement, we would be permitted to issue an unlimited number of shares of our common stock in the Committed Financings. See the description under “The Financings—Potential Effects of the Financings” above for more information about the potential effects of such issuances.

Consequences of Failing to Approve Proposal 1

If our stockholders do not approve Proposal 1 and we do not obtain amendments to the Purchase Agreements to remove the 19.9% cap on the number of shares that we could issue in the Financings, as described above, then our ability to utilize the Committed Financings would be limited to no more than 1,652,559 shares of our common stock, which, together with the 947,870 shares issued in the Completed Financings, is equal to 19.9% of the total number of shares of our common stock outstanding as of immediately before entry into the Purchase Agreements. Depending on the market price of our common stock at or around the time of any Committed Financing, this limitation could materially reduce the amount of net proceeds we may be able to obtain from such financings. To illustrate the impact of this limitation, the following table shows the maximum amount of net proceeds we could obtain in the Committed Financings if we can 

only issue up to 1,652,559 shares of our common stock in such financings, assuming various prices per share for such financings:

Any such limitation on the amount of net proceeds we could obtain from the Committed Financings could cause us to fail to satisfy our liquidity obligations under our credit facility with Cerberus, which could have material adverse effects on our business, results of operations, financial condition and prospects. As a result, your vote at the Special Meeting is important!

Vote Required; Recommendation of Our Board of Directors

The approval of Proposal 1 requires the affirmative vote of a majority of the votes cast on the proposal by shares present in person or represented by proxy at the Special Meeting and entitled to vote on the proposal.

Our Board of Directors recommends a vote “FOR” Proposal 1.

PROPOSAL 2

APPROVAL OF THE ISSUANCE OF SHARES OF OUR COMMON STOCK PURSUANT TO THE PURCHASE AGREEMENTS TO CERTAIN OF OUR DIRECTORS AND OFFICERS

General

At the Special Meeting, our stockholders will be asked to approve the issuance of shares of our common stock in the Committed Financings pursuant to the Purchase Agreements to certain of our directors and officers.

The terms of, reasons for, and other aspects of the Purchase Agreements, the Committed Financings and the issuance of shares to be voted on in this Proposal 2, are described in detail in other sections of this Proxy Statement.

Certain Interests

As a result of their potential participation in the Committed Financings, Messrs. Galvin and Ravich, directors on our Board of Directors, have a direct interest in Proposal 2. See the description under “The Financings—Investors Participating in the Financings” above for more information.

Effects of Approving Proposal 2

If our stockholders approve Proposal 2, then we would be permitted to issue shares of our common stock in the Committed Financings to Messrs. Ravich and Galvin, the investors committed to participate in such financings who are directors, officers, employees or consultants of our Company, without regard to the price per share of such issuance relative to the market value of the stock immediately before the time we entered into the Purchase Agreements. In that event, and assuming our stockholders also approve Proposal 1 as described in this Proxy Statement, we would be permitted to issue shares of our common stock in the Committed Financings to all investors party to the Purchase Agreements at any price. See the description under “The Financings—Potential Effects of the Financings” above for more information about the potential effects of such issuances.

In addition, if our stockholders approve Proposal 2 and we issue shares of our common stock to Messrs. Ravich and Galvin in the Committed Financings at a price per share that is below the market value of our common stock immediately before the time we entered into the Purchase Agreements, which was $4.05 per share, then NASDAQ Listing Rule 5635(c) would consider the difference between $4.05 per share and the price of any such issuance to be a form of “equity compensation” to these directors. The following tables show the amount of any such equity

compensation that may be received by each of Messrs. Ravich and Galvin in the Committed Financings, assuming issuance of the maximum number of shares to each such director at various prices per share in such financings:

Consequences of Failing to Approve Proposal 2

If our stockholders do not approve Proposal 2, then our ability to utilize the Committed Financings would be limited because we could not pursue Committed Financings with our directors who have agreed to participate in such financings if the price per share is below the market value of our common stock immediately before the time we entered into the Purchase Agreements, which was $4.05 per share.  Depending on the market price of our common stock at or around the time of any such financing, this limitation could materially reduce the amount of net proceeds we may be able to obtain from the Committed Financings. To illustrate the impact of this limitation, the following table shows the maximum amount of net proceeds we could obtain in the Committed Financings depending on whether or not we are permitted to issue shares of our common stock to our directors who have agreed to participate in such financings:

Any such limitation on the amount of net proceeds we could obtain from the Committed Financings could cause us to fail to satisfy our liquidity obligations under our credit facility with Cerberus, which could have material adverse effects on our business, results of operations, financial condition and prospects. As a result, your vote at the Special Meeting is important!

Vote Required; Recommendation of Our Board of Directors

The approval of Proposal 2 requires the affirmative vote of a majority of the votes cast on the proposal by shares present in person or represented by proxy at the Special Meeting and entitled to vote on the proposal.

Our Board of Directors recommends a vote “FOR” Proposal 2.

PROPOSAL 3

APPROVAL OF ONE OR MORE ADJOURNMENTS TO THE SPECIAL MEETING TO ESTABLISH A QUORUM OR TO PERMIT FURTHER SOLICITATION OF PROXIES IF THERE ARE NOT SUFFICIENT VOTES CAST IN FAVOR OF PROPOSAL 1 OR PROPOSAL 2

General

If the number of shares of our common stock present in person or represented by proxy at the Special Meeting and voting in favor of Proposal 1 or Proposal 2 is insufficient to approve either such proposal, the chairman of the Special Meeting may move to adjourn or postpone the Special Meeting in order to enable our Board of Directors to continue to solicit additional proxies in favor of these proposals.

Our Board of Directors has determined that it is advisable and in our best interest and in the best interest of our stockholders to seek stockholder approval of one or more adjournments to the Special Meeting, if necessary or appropriate, to establish a quorum or to permit further solicitation of proxies if there are not sufficient votes at the time of the Special Meeting cast in favor of Proposal 1 or Proposal 2 to approve either such proposal. As a result, in this Proposal 3, we are asking our stockholders to authorize the holder of any proxy solicited by our Board of Directors for the Special Meeting to vote in favor of adjourning or postponing the Special Meeting as necessary or appropriate for these purposes.

If our stockholders approve Proposal 3,  then we would be able to adjourn or postpone the Special Meeting, and any adjourned or postponed session of the Special Meeting, in order to solicit additional proxies in favor of the Proposal 1 and Proposal 2.  In addition, approval of Proposal 3 would also enable the adjournment or postponement of the Special Meeting in the event we receive proxies indicating that a majority of the votes cast on Proposal 1 or Proposal 2 will be voted against either such proposal,  in which case we could adjourn or postpone the Special Meeting without a vote on Proposal 1 or Proposal 2 in order to solicit the holders of those shares to change their votes or to solicit additional favorable votes from other stockholders.

Certain Interests

As a result of their potential participation in the Committed Financings, Messrs. Galvin and Ravich, directors on our Board of Directors, have a direct interest in Proposal 3. See the description under “The Financings—Investors Participating in the Financings” above for more information.

Vote Required; Recommendation of Our Board of Directors

The approval of Proposal 3 requires the affirmative vote of a majority of the shares present in person or represented by proxy at the Special Meeting, even if less than a quorum.

Our Board of Directors recommends a vote “FOR” Proposal 3.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows the number of shares of our common stock beneficially owned by, and percentage ownership of, the following:

We have determined beneficial ownership in accordance with the rules of the SEC. Under such rules, a person’s beneficial ownership includes any shares that the person has the right to acquire as of or within 60 days after October 5, 2017, through the exercise or conversion of any outstanding stock options or other rights or the vesting of any outstanding restricted stock units (“RSUs”). Such shares that a person has the right to acquire are deemed to be outstanding for the purpose of computing the percentage ownership of that person, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. As a result, with respect to the Financings, all shares of our common stock issued in the Completed Financing are reflected as beneficially owned, but all shares of our common stock subject to the Warrants or that may be issued in a Committed Financing are not reflected as beneficially owned. All ownership percentages in the table below are based on 13,950,020 shares of our common stock outstanding as of October 5, 2017.

Unless otherwise indicated in the notes to the table below, to our knowledge, all persons named in the table have sole voting and investment power with respect to the shares of our common stock identified as beneficially owned by them, except to the extent authority is shared by spouses under applicable community property laws. Additionally, unless otherwise indicated in the notes to the table below, all information is as of October 5, 2017 and the address of each person is c/o Cherokee Inc., 5990 Sepulveda Boulevard, Suite 600, Sherman Oaks, California 91411.

*Represents beneficial ownership of less than 1%, based on shares of common stock outstanding as of October 5, 2017.

 

COMPENSATION DISCUSSION AND ANALYSIS

This compensation discussion and analysis explains Cherokee’s policies and philosophies regarding executive compensation and the material elements of the compensation awarded to, earned by, or paid to each of Cherokee’s Named Executive Officers in Fiscal 2017. The disclosure included in this compensation discussion and analysis is identical to the disclosure included under the same heading in the proxy statement we delivered to stockholders in connection with our annual meeting of stockholders held on June 22, 2017.

Compensation Policies and Philosophy

The Compensation Committee established and oversees the design and administration of our executive compensation programs. The primary objectives of our executive compensation programs are to:

To achieve these objectives, the Compensation Committee endeavors to implement and maintain compensation packages that are performance‑oriented and designed to link Cherokee’s strategic business objectives, specific financial performance objectives and the enhancement of stockholder returns with the compensation of Cherokee’s executives, including the Named Executive Officers, while also providing competitive guaranteed compensation and opportunities for rewards that attract and retain top‑quality and experienced executives. Our compensation programs seek to accomplish these goals by using a combination of base salary, performance‑based and discretionary cash bonuses, equity compensation, change in control and post‑termination severance benefits and other benefits generally available to all of Cherokee’s employees. The appropriate mix and levels of these compensation components are determined by our Compensation Committee based on the performance of each executive and our Company, within the context of our compensation philosophy and objectives. The Compensation Committee evaluates and determines the performance of each of our Named Executive Officers considering the following factors, among others as it deems appropriate in its discretion: the executive’s ability to perform assigned tasks; the executive’s knowledge of his or her job; the executive’s ability to work with others toward the achievement of Cherokee’s goals; and internal pay equity among our Named Executive Officers. The Compensation Committee also evaluates corporate performance by considering factors such as Cherokee’s performance relative to the business environment and our competitors and Cherokee’s success in meeting its business and financial objectives. In reviewing these factors for both individual and corporate performance, the Compensation Committee relies on its subjective evaluations of these factors, based on its business judgment and experience.

Process for Establishing Executive Compensation

The Compensation Committee determines Named Executive Officer compensation by drawing on its experience and judgment in establishing compensation programs and pay levels that it believes are appropriately rewarding to our Named Executive Officers and are responsible for a company in our stage of growth, and that otherwise satisfy the principle objectives of our compensation policies and philosophy. The Compensation Committee’s practice is to establish the annual compensation packages for each of our Named Executive Officers in the beginning of each fiscal year, typically in our first fiscal quarter in connection with annual performance reviews. Performing this process after the end of the prior fiscal year allows the Compensation Committee to incorporate data on Cherokee’s performance during the prior year into its analysis and to conduct an assessment of the executives’ contributions to Cherokee’s overall performance. The Compensation Committee then compiles this information to establish annual base compensation and performance‑related incentives and make adjustments to long‑range compensation incentives as it deems appropriate.

Compensation Peer Group

In determining executive compensation packages for Fiscal 2017, the Compensation Committee desired to maintain compensation levels and structure that were substantially consistent with those of Fiscal 2015 and Fiscal 2016. As a result, it did not rely on peer groups, benchmarking, industry surveys or similar tools.

In the third quarter of Fiscal 2017, the Compensation Committee engaged Radford Consulting (“Radford”) to review and assess the Company’s executive and director compensation programs within the context of the competitive market, including assisting in establishing an appropriate group of selected peer companies and comparing Cherokee’s executive and director compensation programs with these peer companies. Selecting a group of our peer companies can be challenging for many reasons, including our relatively small market cap, our relatively low revenues, the limited number of employees we employ and our strategic plan to grow our business. In selecting our peer companies for compensation purposes, the Compensation Committee generally sought to identify companies that are similar to us across one or more key metrics and that, in the Compensation Committee’s view, compete with us for talent. As a result, with the assistance of Radford and with input from management, the Compensation Committee developed a group of peer companies consisting of U.S.-based, stand-alone, publicly traded companies that operate in our industry or with a similar business model and are comparable to us with respect to one or more identified factors, including market capitalization, annual revenues, net income and number of employees, among others. Based on this assessment, the Compensation Committee selected the following companies as our peer companies for compensation purposes, which we refer to collectively as the “Compensation Peer Group”:

 

Although the Compensation Peer Group was not referenced to establish base compensation packages for our Named Executive Officers for Fiscal 2017 due the timing of Radford’s engagement, the Compensation Committee used information about the executive compensation practices of the Compensation Peer Group to inform compensation decisions about bonus levels and special awards to our Named Executive Officers for Fiscal 2017 and in setting base compensation packages for our Named Executive Officers for Fiscal 2018. The Compensation Committee used data about the Compensation Peer Group to serve as market reference points for a variety of compensation features, including the level of overall compensation and each compensation component, optimum pay mix and the relative competitive landscape of our executive compensation program. In using this data, the Compensation Committee did not strive to benchmark any individual compensation component or total compensation levels to be at any specific percentile relative to the market, as the Compensation Committee believes that benchmarking may not always be the most appropriate tool for setting compensation due to the aspects of our business and objectives that may be unique to us. Rather, the Compensation Committee used the information about the Compensation Peer Group for general compensation comparison purposes, with the goal of setting compensation levels that it believes are commensurate with Cherokee’s scope and performance and the individual performance of each of our Named Executive Officers.

Role of our Chief Executive Officer and Other Executive Officers in Compensation Decisions

For compensation paid to each Named Executive Officer other than the Chief Executive Officer, our Chief Executive Officer reviews, on an annual basis, the performance of each executive officer, as well as the compensation paid to each executive officer for the prior fiscal year. Following this review, our Chief Executive Officer submits to the Compensation Committee his recommendations regarding the compensation to be paid to each Named Executive Officer for the next fiscal year, including recommended salary levels, bonuses and equity awards, as applicable. Following a review of such recommendations, the Compensation Committee takes such action regarding such compensation as it deems appropriate, including approving compensation in an amount it determines is reasonable. The Chief Executive Officer is not involved in discussions about or the determination of any aspect of his own compensation. Ultimately, the Compensation Committee determines and approves the mix and level of compensation for all executives based on its own assessment of factors it deems relevant, including each executive’s and Cherokee’s performance.

Our Chief Executive Officer participates in meetings of the Compensation Committee at the Compensation Committee’s request, other than during executive session or when our Chief Executive Officer’s own compensation is under discussion, to provide:

In addition, our Chief Financial Officer often prepares information for the meetings of the Compensation Committee, including information about our financial performance, and our President and Chief Operating Officer and our Chief Financial Officer participate in Compensation Committee meetings at the Compensation Committee’s request, other than during executive session or when the compensation of such executive officers is under discussion.

Our Chief Executive Officer and our other executive officers also play a significant role in the compensation‑setting process for our non-executive employees by:

Role of Compensation Consultant

In the third quarter of 2016, the Compensation Committee engaged Radford to conduct a full review and assessment of the Company’s executive and director compensation programs within the context of the competitive market. Radford was engaged by and reports solely to the Compensation Committee, and the Compensation Committee has the sole authority to approve the terms of the engagement. Radford did not provide any services to the Company in Fiscal 2017 other than executive compensation consulting services provided to the Compensation Committee. Before engaging Radford, the Compensation Committee determined that Radford is independent, after taking into account the factors set forth in Rule 10C‑1 of the Exchange Act and NASDAQ Marketplace Rule 5605(d)(3).

Review of Stockholder Advisory Votes on Our Executive Compensation

Consistent with the preference of our stockholders, which was expressed at Cherokee’s annual meeting of stockholders held in June 2011, our stockholders currently have the opportunity to cast an advisory vote on our executive compensation annually. At our 2016 annual meeting of stockholders, our executive compensation received a favorable advisory vote from 98% of the votes cast on the proposal at the meeting (which excludes abstentions and broker non-votes). The Compensation Committee believes this approval affirmed stockholders’ support of Cherokee’s approach to executive compensation, and therefore the Compensation Committee did not significantly change our compensation policies, philosophy, structure or levels in Fiscal 2017. The Compensation Committee will continue to consider the outcome of stockholder advisory votes on our executive compensation when making compensation decisions for our Named Executive Officers and in respect of our compensation programs generally.

Components of Compensation

The compensation of our Named Executive Officers consists of four principal components, including base salary, performance‑based and discretionary cash bonuses, equity compensation and change in control and post‑termination severance benefits, and also includes certain other benefits that are generally available to all of Cherokee’s employees. The Compensation Committee views each Named Executive Officer’s compensation holistically as a package, such that a decision to deliver a higher discretionary cash bonus could result in a consequent decision to

grant the Named Executive Officer fewer equity awards. The Compensation Committee sets the mix and levels of these compensation components with the goal of providing appropriate short‑term and long‑term cash and non‑cash compensation to be competitive with companies with which Cherokee competes for talent, attract and retain talented and hard‑working individuals and align their incentives with the interests of our stockholders.

Base Salary

We provide base salaries to recognize the experience, skills, knowledge and responsibilities of our Named Executive Officers, reward individual performance, reward an executive’s contribution to our overall business performance and success in meeting our business and financial objectives, and provide an appropriate retention incentive. The Compensation Committee conducts an annual review of the base salary for each Named Executive Officer, which includes a review of the recommendations of our Chief Executive Officer regarding salary levels for executives other than himself. In considering the base salary of each Named Executive Officer, the Compensation Committee considers the individual and corporate performance factors described above, in addition to other qualitative and quantitative factors it may deem relevant, including the base salary levels for similar executives of the Compensation Peer Group and other information provided by Radford. Typically, a Named Executive Officer’s base salary is increased with additional job responsibility or in light of other factors, but is not intended to be the primary compensation method to reward past performance or incentivize future performance.

The base salaries for our Named Executive Officers for Fiscal 2016, Fiscal 2017 and Fiscal 2018 are as follows:

 

Cash Bonuses

We periodically pay cash bonuses to Named Executive Officers at the discretion of the Compensation Committee based on the Compensation Committee’s evaluation of performance against various corporate and individual goals and objectives and pursuant to a performance‑based cash bonus plan. In each case, this element of compensation is designed to motivate the Named Executive Officers to meet the business and financial objectives of Cherokee.

Fiscal 2017 Performance Bonus

Pursuant to the terms of Messrs. Stupp’s and Siegel’s employment agreements with us, which are described under “Employment Agreements” below, and pursuant to the Compensation Committee’s determination in May 2014 to also apply the applicable terms to Mr. Boling, each of Messrs. Stupp, Siegel and Boling is eligible to receive a cash performance‑based bonus (the “Performance Bonus”) based on the level of achievement of Cherokee’s EBITDA (defined as net income before interest expense, tax provision, depreciation, and amortization are subtracted, and inclusive of any amounts payable as Performance Bonus) for each fiscal year relative to the EBITDA target included in the budget approved by the Board for such fiscal year (and taking into account any Board approved adjustments to the budgeted EBITDA resulting from any business acquisitions or dispositions consummated during the relevant fiscal year or any other specified unusual or non-recurring transactions or events). The amount of the Performance Bonus is as follows: (i) for Mr. Stupp, $200,000 at 100% achievement, with a minimum bonus of $50,000 at 80% achievement and a maximum bonus of $350,000 at 120% achievement (with linear interpolation between 80% and 120% achievement) and (ii) for each of Messrs. Siegel and Boling, 30% of his then‑current base salary at 100% achievement, with a minimum bonus of 20% of his then‑current base salary at 80% achievement and a maximum bonus of 40% of his then‑current base salary at 120% achievement (with linear interpolation between 80% and 120% achievement). If Cherokee’s EBITDA for a fiscal year is less than 80% of the EBITDA target included in the budget approved by the Board for such fiscal year (and taking into account any Board approved adjustments to the budgeted EBITDA), then none of Messrs. Stupp, Siegel and Boling are entitled to any Performance Bonus for that fiscal year.

The Compensation Committee determined to base the achievement of the Performance Bonus on Cherokee’s EBITDA because this metric provides a basis for measuring Cherokee’s operating performance and profitability based upon its business and assets, without regard to the impact of variations attributable to certain accounting or tax‑related matters.

For Fiscal 2017, Cherokee’s EBITDA was approximately $(1.9) million, which was less than 80% of the EBITDA target that the Compensation Committee had established for this period. As a result, none of Messrs. Stupp, Siegel and Boling was awarded a Performance Bonus for Fiscal 2017.

Fiscal 2017 Discretionary Cash Bonus

The decisions as to whether or not discretionary cash bonuses will be paid and the amounts and timing of such bonuses are tied to the profitability and performance of Cherokee and other factors the Compensation Committee may deem relevant with respect to each Named Executive Officer. For Fiscal 2017, the Compensation Committee did not pre‑establish or communicate to executives any performance targets for discretionary cash bonuses. In determining cash bonus levels, the Compensation Committee reviews our corporate performance and the performance of each Named Executive Officer, which includes a review of the recommendations of our Chief Executive Officer regarding cash bonus levels for executives other than himself . The Compensation Committee also considers internal pay equity factors together with each Named Executive Officer’s qualifications, duties and responsibilities and, with respect to our Chief Executive Officer, his eligibility to receive discretionary cash bonuses as set forth in his employment agreement with us, which is described under “Employment Agreements” below.

For Fiscal 2017, the Compensation Committee determined not to pay any of our Named Executive Officers a discretionary cash bonus for overall performance during the year. However, in December 2016, the Compensation Committee approved special cash bonuses to each Named Executive Officer in recognition of significant efforts in Cherokee’s successful completion of its acquisition of the Hi-Tec and Magnum brands. These special cash bonuses consisted of cash payments of $160,000, $80,000 and $80,000 to Messrs. Stupp, Siegel and Boling, respectively.

Equity Compensation

One of the goals of our executive compensation programs is to motivate long-term performance by aligning the interests of our executives with those of our stockholders. The Compensation Committee believes the use of equity awards offers the best approach for achieving this goal, and has established our equity compensation plans in order to provide certain employees, including our Named Executive Officers, an opportunity to participate in the ownership of our Company. In general, the Compensation Committee develops its equity award determinations based on its judgments as to whether the equity awards provided to our Named Executive Officers appropriately align the interests of our Named Executive Officers with those of our stockholders and are sufficient to retain, motivate and adequately reward our executives on a long-term basis.

Cherokee currently maintains one equity compensation plan, the 2013 Plan, which initially became effective following its approval by our stockholders on July 16, 2013 and which was amended and restated upon approval by our stockholders on June 6, 2016. The 2013 Plan serves as the successor to the 2006 Incentive Award Plan (the “Predecessor Plan”), which terminated concurrently with the approval by our stockholders of the 2013 Plan (except with respect to awards previously granted under the Predecessor Plan that remain outstanding). For more information about the 2013 Plan and the Predecessor Plan, please see “Executive Compensation—Equity Compensation Plans” below.

Types of Awards

We have historically granted our Named Executive Officers the following three types of equity awards under our equity compensation plans, all pursuant to award agreements under the applicable plan:

Stock Options.  Stock option awards afford the recipient the option to purchase shares of our common stock at a stated price per share. Stock option awards granted to our Named Executive Officers are granted under Cherokee’s equity compensation plans with exercise prices equal to or above the market price of Cherokee’s common stock on the

date of grant and generally vest in equal annual installments over two, three or five years beginning on the one-year anniversary of the date of grant, subject to continued service through each vesting date and, to the extent specified in the applicable award agreement, accelerated vesting under certain circumstances. Since stock option awards have value only if the price of Cherokee’s common stock increases over the exercise price, the Compensation Committee believes that stock option awards provide incentives to build stockholder value and thereby align the interests of our Named Executive Officers with those of our stockholders. The Compensation Committee also believes that these awards, which may vest over a period of two or more years, have important retention value.

RSUs.  RSUs are full-value awards that represent the contingent right to receive shares of our common stock upon achievement of stated time‑based vesting criteria. RSUs granted to our Named Executive Officers are granted under Cherokee’s equity compensation plans and generally vest in equal annual installments over three years beginning on the one-year anniversary of the date of grant, subject to continued service through each vesting date and, to the extent specified in the applicable award agreement, accelerated vesting under certain circumstances. As RSUs generally do not require the payment of an exercise price or the satisfaction of other performance criteria in order to vest, the Compensation Committee believes that these awards provide greater certainty of delivering value to our Named Executive Officers, which may be desired in order to reward our Named Executive Officers for achievement of individual or corporate strategic objectives or otherwise strong performance or in light of other factors deemed relevant, such as the terms of other outstanding equity awards, while still incentivizing long‑term performance and providing long‑term retention benefits by delivering value aligned with our stock performance over a three‑year vesting period.

Performance Stock Units.  Performance stock units are a type of RSU that vest in up to three annual installments based on the achievement of a stock price target each year. Each stock price target is calculated using the closing price of the Company’s common stock on the last day of the fiscal year preceding the grant date of the award and adding 10% growth per year, and is measured at the end of each fiscal year in which the award is outstanding. In order to achieve the applicable stock price target, the average of all closing prices during the January preceding the applicable fiscal year‑end must meet or exceed the stock price target. If a stock price target is met, one‑third of the shares subject to the award vest, and if a stock price target for either of the first two years in which an award is outstanding is not met, the portion of the award that would have vested would “roll over” and vest if the stock price target for the following fiscal year(s) in which the award remains outstanding are met, subject in all cases to continued service through each vesting date and, to the extent specified in the applicable award agreement, accelerated vesting under certain circumstances. The Compensation Committee believes this type of award design has several benefits, including, among others, that the awards have a strong performance orientation in that they generally do not vest unless one or more stock price targets are achieved; the awards align the Named Executive Officers’ interests with those of our stockholders, since the awards only vest if stockholders experience an increase in the value of their shares relative to the trading price of the shares on the grant date of the award; the stock price targets are objective, measureable, straightforward, and difficult to manipulate; the awards are only earned following a sustained stock price increase, minimizing the possibility of vesting upon a short‑term stock price spike; and there is no exercise price associated with the awards, so they could have more value delivery potential with less associated dilution than some other types of equity awards.

Award Timing, Mix and Levels

In determining the number and type of equity awards to grant in any fiscal year, the Compensation Committee considers a variety of factors, including the responsibilities and seniority of the Named Executive Officer, the contribution that the Named Executive Officer is expected to make to Cherokee in the coming years and has made to Cherokee in the past, and the size and terms of prior equity awards granted to the Named Executive Officer. The Compensation Committee generally grants equity awards for Named Executive Officers and other employees other than the Chief Executive Officer based on recommendations from the Chief Executive Officer made in connection with annual performance reviews. Decisions regarding these equity awards are typically made at the Compensation Committee’s first fiscal quarter meeting at which executive compensation for the coming year is determined. However, the Compensation Committee may also grant equity awards from time to time based on individual and corporate achievements and other factors it deems relevant, such as for retention purposes or to reflect changes in responsibilities or similar events or circumstances.

Fiscal 2017 Equity Awards

In Fiscal 2017, the Compensation Committee granted each Named Executive Officer performance stock units and special transaction awards, as described below.

Performance Stock Units.  On April 5, 2016, the Compensation Committee approved the grant of performance stock unit awards to Messrs. Stupp, Siegel and Boling pursuant to the 2013 Plan, entitling them to receive up to 10,000, 6,000 and 3,500 shares of Cherokee’s common stock, respectively, in each case over the three years beginning on the last day of Fiscal 2017 and subject to the performance criteria set forth in the applicable award agreements and as described above. Since the price target for Fiscal 2017 was not met, the first one‑third of the shares subject to each award failed to vest on the last day of Fiscal 2017. The Compensation Committee granted these awards to our Named Executive Officers to provide a long-term performance-based incentive following the expiration of performance stock units that were granted in Fiscal 2014 and expired at the end of Fiscal 2016.

Special Transaction Awards.  Along with the special cash bonuses awarded in December 2016, as described under “Cash Bonuses—Discretionary Cash Bonuses” above, the Compensation Committee also approved in December 2016 special transaction equity awards to each Named Executive Officer in recognition of significant efforts in Cherokee’s successful completion of its acquisition of the Hi-Tec and Magnum brands. These special transaction equity awards consisted of stock options to purchase up to 50,000, 30,000 and 20,000 shares of our common stock granted to Messrs. Stupp, Siegel and Boling, respectively. Each stock option award has an exercise price of $11.20 per share, has a contractual term of 3.5 years, and vests in equal annual installments over three years beginning on the one-year anniversary of the date of grant, subject to continued service through each vesting date and accelerated vesting under certain circumstances.

Change in Control and Post‑Termination Severance Benefits

The employment agreements for each of our Named Executive Officers provide them certain benefits if their employment is terminated under specified conditions, including a termination in connection with a change in control of Cherokee. The Compensation Committee believes these benefits are important elements of each Named Executive Officer’s comprehensive compensation package, primarily for their retention value and their alignment of the interests of our Named Executive Officers with those of our stockholders. The details and amounts of these benefits are described under “Executive Compensation—Potential Payments Upon Termination or Change in Control” below.

Other Benefits

Cherokee provides broad‑based benefits that are generally available to all of its employees, including health and dental insurance, life and disability insurance and a savings plan that qualifies as a defined contribution plan under Section 401(k) of the Code. Participants in this 401(k) plan are permitted to contribute to the plan through payroll deductions within statutory and plan limits and may select from a variety of investment options, which do not include Cherokee’s common stock. Under this 401(k) plan, Cherokee provides a matching contribution of up to 4% of each participant’s salary per year. In addition, Cherokee annually reviews the perquisites that senior executives receive, and the Named Executive Officers are generally entitled to the same perquisites that are available to all of Cherokee’s employees.

Deductibility of Executive Compensation

It is our policy generally to seek to qualify compensation paid to Named Executive Officers for deductibility under Section 162(m). Section 162(m) generally prohibits us from taking a tax deduction in any tax year for compensation paid to certain executive officers that exceeds $1,000,000, unless the compensation is payable only upon the achievement of pre-established, objective performance goals under a plan approved by our stockholders. We believe the stock option, RSU and performance stock unit awards we have granted to our Named Executive Officers under the 2013 Plan, the Predecessor Plan and our other historical equity compensation plans qualify as performance‑based compensation under Section 162(m), but there is no guarantee that such equity awards, or any other performance‑based compensation paid to our Named Executive Officers, qualify as such. We reserve the discretion to pay compensation to

our executives that may not be deductible if we determine that paying such compensation is in the best interests of Cherokee and our stockholders.

Employment Agreements

We have entered into an employment agreement or offer letter with each of our Named Executive Officers that sets forth the terms of his compensation arrangements as described above and certain other terms of his employment with us. The Compensation Committee determined to enter into employment agreements with each of our Named Executive Officers in light of various factors, including their respective levels of responsibility, the retention value of the agreements, particularly the change in control and post‑termination severance benefits provided in the agreements, and internal pay equity factors.

During Fiscal 2017, the Compensation Committee approved and amended and restated employment agreement with Mr. Stupp, which supersedes and replaces his prior employment agreement with us. The terms of Mr. Stupp’s new employment agreement are substantially similar to those of his prior employment agreement with us, except that (i) the contractual term of the new employment agreement extends until January 31, 2020 (whereas the prior employment agreement’s contractual term expired January 31, 2017), and (ii) the determination of the amount of Mr. Stupp’s Performance Bonus for each fiscal year is based on the level of achievement of the Company’s budgeted EBITDA for the applicable fiscal year after taking into account all adjustments to the budgeted EBITDA that are approved by the Board of Directors, as described under “Cash Bonuses—Fiscal 2017 Performance Bonus” above (whereas the prior employment agreement only took into account adjustments to the budgeted EBITDA resulting from any business acquisitions or dispositions consummated during the applicable fiscal year). Each of Messrs. Stupp’s, Siegel’s and Boling’s employment agreement or offer letter with us is described under “Executive Compensation—Employment Agreements” below.

Summary of Fiscal 2017 Executive Compensation

The following table summarizes the compensation of our Named Executive Officers for Fiscal 2017:

COMPENSATION COMMITTEE REPORT

We, the Compensation Committee, have reviewed and discussed with Cherokee’s management the disclosure under “Compensation Discussion and Analysis” above. Based on this review and discussion, we recommended to the Board of Directors that such Compensation Discussion and Analysis be included in this Proxy Statement.

COMPENSATION COMMITTEE:

Frank Tworecke, Chair

Carol Baiocchi

Susan E. Engel

Jess Ravich

This compensation committee report shall not be deemed to be “filed” with the SEC or subject to Regulation 14A or 14C under the Exchange Act other than as provided by applicable SEC rules, or to the liabilities of Section 18 of the Exchange Act except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth the compensation awarded to, earned by or paid to our Named Executive Officers for Fiscal 2017, Fiscal 2016 and Fiscal 2015:

Grants of Plan‑Based Awards

The following table provides information about each grant of a plan‑based award to a Named Executive Officer in Fiscal 2017:

Outstanding Equity Awards at Fiscal Year-End

The following table summarizes outstanding equity awards held by our Named Executive Officers as of January 28, 2017: