SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
[Amendment No. ]
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
[_] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by exchange act rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
CHEROKEE INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
On June 14, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
Cherokee Inc. (the "Company") will be held at the Palisades Salon in the Loews
Santa Monica Beach Hotel, 1700 Ocean Avenue, Santa Monica, California, on June
14, 1999, 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 Company's 2000 Annual Meeting of Stockholders and until their
successors have been duly elected and qualified;
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, 1999 will be
entitled to notice of and to vote at said meeting or any adjournments thereof.
A list of such stockholders shall be open to the examination of any
stockholder at the meeting and for a period of ten days prior to the date of
the meeting at the Loews Santa Monica Beach Hotel, 1700 Ocean Avenue, Santa
Monica, California.
The Board of Directors urges each stockholder to read carefully the enclosed
proxy statement, which is incorporated herein by reference.
By Order of the Board of Directors,
/s/ Carol A. Gratzke
Carol A. Gratzke
Secretary
6835 Valjean Avenue
Van Nuys, CA 91406
Dated: May 7, 1999
IMPORTANT
Whether or not you expect to attend the 1999 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 1999 Annual Meeting.
CHEROKEE INC.
6835 Valjean Avenue
Van Nuys, CA 91406
----------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
June 14, 1999
----------------
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors and management of Cherokee Inc., a Delaware corporation
("Cherokee" or "Company"), of proxies to be used at the 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 June 14, 1999, 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 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 meeting.
If no instructions are given on the proxy, all shares represented by valid
proxies received pursuant to this solicitation and not revoked before they are
voted will be voted FOR the directors nominated by the Board 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 requested to so notify the Secretary of the
Company prior to the time of the meeting.
The mailing address of the Company is 6835 Valjean Avenue, Van Nuys,
California 91406. The approximate date on which this Proxy Statement and form
of proxy are being mailed to the stockholders is May 14, 1999.
GENERAL INFORMATION
Outstanding Shares and Voting Rights
There were 8,705,428 shares of common stock of the Company outstanding as of
April 24, 1999, the Record Date for the stockholders entitled to vote at the
Annual Meeting. Each stockholder of record at the close of business on April
24, 1999 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.
A majority of the votes eligible to be cast at the Annual Meeting by holders
of common stock of the Company, or 4,352,715 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. Brokers who hold shares in street name have
the authority to vote on certain "routine" matters when they have not received
instructions from beneficial owners. Brokers that do not receive instructions
are entitled to vote on the election of directors. The Company's Certificate
of Incorporation does not provide for cumulative voting.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial
ownership of common stock of the Company as of April 24, 1999 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, 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 8,705,428 shares of common stock outstanding
on April 24, 1999.
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership of Class
------------------- -------------------- ----------
Timothy Ewing............................. 2,136,946(1) 24.5%(1)
2200 Ross Avenue
Suite 4660 West
Dallas, TX 75201
Value Partners, Ltd....................... 2,112,869 24.3%
C/O Fisher Ewing Partners
2200 Ross Avenue
Suite 4660 West
Dallas, TX 75201
Robert Margolis........................... 1,597,394(2) 18.3%(2)
6835 Valjean Avenue
Van Nuys, CA 91406
The Newstar Group, Inc.................... 718,541(3) 8.3%(3)
dba The Wilstar Group
6835 Valjean Avenue
Van Nuys, CA 91406
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(1) Includes 2,112,869 shares held directly by Value Partners, Ltd. Mr. Ewing
is managing partner of Ewing & Partners, which is the general partner of
Value Partner's 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 878,853 shares individually held by Mr. Margolis.
2
The following table sets forth information regarding the beneficial
ownership of common stock of the Company as of April 24, 1999, by all
directors, the executive officers named in the Executive Summary Compensation
Table and all directors and executive officers as a group. Unless noted
otherwise, the holders listed below have sole voting and dispositive power
over the shares beneficially held by them. 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, 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 8,705,428 shares of common stock outstanding
on April 24, 1999.
Amount and
Nature of
Beneficial Percentage
Name of Beneficial Owner Ownership of Class
------------------------ ---------- ----------
Robert Margolis(1) ................................... 1,597,394 18.3%
Douglas Weitman(2) ................................... 356,397 4.1%
Jess Ravich(3) ....................................... 193,349 2.2%
Keith Hull(2)......................................... 28,277 *
Timothy Ewing(4)...................................... 2,136,946 24.5%
Patricia Warren(5).................................... 202,503 2.3%
Carol Gratzke(6)...................................... 119,496 1.4%
Howard Siegel(7)...................................... 92,208 1.1%
Steven Ascher......................................... -- --
All Executive Officers and directors as a group(8).... 4,726,570 52.8%
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* = Less than 1%
(1) Includes 878,853 shares held individually by Mr. Margolis and
718,541shares owned by Wilstar. Mr. Margolis is the sole shareholder of
Wilstar.
(2) Includes 5,000 shares, which shares may be purchased pursuant to options
that are currently exercisable at an exercise price of $10.50.
(3) Includes 5,000 shares, which may be purchased pursuant to options that are
currently exercisable at an exercise price of $10.50, and 165,033 shares
owned by U.S. Bancorp Libra, a division of U.S. Bancorp Investments, Inc.
Mr. Ravich is the Chairman and Chief Executive Officer of U.S. Bancorp
Libra and, therefore, may be deemed to be the beneficial owner of such
shares.
(4) Includes 2,112,869 shares held directly by Value Partners, Ltd. Mr. Ewing
is managing partner of Ewing & Partners, which is the general partner of
Value Partner's Ltd. and, therefore, Mr. Ewing may be deemed to be the
beneficial owner of such shares.
(5) Includes 101,524 shares, which shares may be purchased pursuant to options
that are or will be exercisable within sixty days of April 24, 1999, at
various exercise prices.
(6) Includes 79,496 shares, which may be purchased pursuant to options that
are or will be exercisable within sixty days of April 24, 1999, at various
exercise prices.
(7) Includes 57,942 shares, which may be purchased pursuant to options that
are or will be exercisable within sixty days of April 24, 1999, at various
exercise prices.
(8) Includes 253,962 shares, which may be acquired pursuant to options that
are or will be exercisable within sixty days of April 24, 1999, at various
exercise prices.
3
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. All five current directors have been
nominated for reelection at the meeting for one-year terms. 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, 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.
Name, Age Principal Occupation for Past Five Years;
and Other Directorships;
Present Position with the Company Business Experience
--------------------------------- ---------------------------------------------
Robert Margolis, 51 Mr. Margolis has been a director of the
Director, Chairman of the Board Company since May 1995. Mr. Margolis was
of Directors and Chief Executive appointed Chairman of the Board of Directors
Officer 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 the Company
and Wilstar (the "Wilstar Management
Agreement").
Timothy Ewing, 39 Mr. Ewing has been a director of the Company
Director since September 1997. Mr. Ewing, a Chartered
Financial Analyst, is 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, the governing board of a Hospital
System based in Dallas, Texas, and The Dallas
Opera, and the governing board of the Dallas
Museum of Natural History.
4
Name, Age Principal Occupation for Past Five Years;
and Other Directorships;
Present Position with the Company Business Experience
--------------------------------- -----------------------------------------
Douglas Weitman, 55 Mr. Weitman has been a director of the
Director Company since May 1995. For more than
five years, Mr. Weitman has been the
Chief Executive Officer of Security
Textile Corp., a privately owned
manufacturer of apparel and textile
related products. When Mr. Weitman first
joined the Board of Directors in 1995, he
was nominated pursuant to the terms of
the Wilstar Management Agreement, which
provides Wilstar may nominate two members
of the Board of Directors.
Jess Ravich, 41 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
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 USBZ in January 1999. Mr.
Ravich is on the board of directors of
Communication Intelligence Corporation.
Keith Hull, 46 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. When Mr. Hull first joined the
Board of Directors in 1995, he was
nominated pursuant to the terms of the
Wilstar Management Agreement, which
provides Wilstar may nominate two members
of the Board of Directors.
The Board of Directors recommends votes FOR the election of all five
nominees for directors. All the nominees currently serve as directors of the
Company. Proxies given without instructions will be voted for all five
nominees.
Meetings and Committees of the Board of Directors
The business affairs of the Company are managed under the direction of the
Board of Directors, although the Board of Directors is not involved in day-to-
day operations. During the fiscal year ended January 30, 1999 ("Fiscal 1999")
the Board of Directors met four times. Each director attended at least 75% of
all Board of Directors and applicable committee meetings during Fiscal 1999.
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 1999, the Audit Committee consisted of three non-employee
directors, Mr. Hull, Mr. Ewing and Mr. Ravich. The Audit Committee met once
during this period.
5
Compensation Committee
The Company's compensation program for executives is administered by the
Compensation Committee of the Board of Directors. The Compensation Committee
consists of Mr. Ravich, Mr. Ewing, and Mr. Weitman, 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 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
1999.
Compensation Committee Interlocks and Insider Participation
Except for Mr. Margolis, who is the Chief Executive Officer, a director and,
as of June 23, 1997, the sole shareholder of Wilstar, and Mr. Weitman, who,
until June 23, 1997, was a director and shareholder of Wilstar, none of the
executive officers of the Company has served on the Board of Directors or on
the Compensation Committee of any other entity, any of whose officers served
either on the Board of Directors or on the Compensation Committee of the
Company. On May 4, 1995, the Company and Wilstar entered into the Wilstar
Management Agreement pursuant to which Wilstar agreed to provide executive
management services to the Company by providing the services of Robert
Margolis as Chief Executive Officer. The Wilstar Management Agreement was
amended for services rendered on or after June 1, 1997. See "Employment
Contracts and Management Agreements" below for a further description of the
Wilstar Agreement as amended.
Since May 26, 1995, the Company has shared office space with Wilstar at an
office facility in Van Nuys, California, which Wilstar leases from an
unaffiliated third party. Mr. Margolis serves as chief executive officer of
Wilstar. The Company used approximately 3,685 square feet of such space and
paid Wilstar for such usage at the rate of $.75 per square foot or $2,762 per
month plus one-half of certain costs relating to the office space. The rent
and costs were prorated based upon square footage used by the Company and
Wilstar did not profit therefrom. The Company also rented 4,000 square feet of
Wilstar's warehouse as a storage facility and paid rent at a rate of $.50 per
square foot. The Company believes that its rental of such space from Wilstar
is on terms of no less favorable than could be obtained from an unaffiliated
third party. Upon the expiration of the Wilstar lease on July 31, 1998, the
Company negotiated a new lease with the facility's owner.
Directors' Remuneration and Stock Options
For their services on the Board of Directors during Fiscal 1999, non-officer
or non-employee directors were paid a retainer fee of $15,000 per annum. The
director fees are paid on a quarterly basis. Shown below is information
concerning the amount of retainer or committee fee paid to each non-officer or
non-employee director during Fiscal 1999:
Director Fees Paid in Fiscal 1999
-------- ------------------------
Timothy Ewing..................................... $15,000
Jess Ravich....................................... 15,000
Keith Hull........................................ 15,000
Douglas Weitman................................... 15,000
On June 8, 1998, Timothy Ewing, Douglas Weitman, Jess Ravich, Keith Hull and
Robert Margolis were granted five-year options to purchase 5,000 shares each
at an exercise price of $10.50. Mr. Ewing and Mr. Margolis exercised their
options on July 6, 1998 and each purchased 5,000 shares of Company common
stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR EACH OF THE DIRECTORS NOMINATED IN ITEM 1
6
EXECUTIVE COMPENSATION
Summary Executive Compensation Table
The Summary Executive Compensation Table below sets forth the annual and
long-term compensation for services in all capacities for Fiscal 1999, for the
eight months ended January 31, 1998 and for the year ended May 31, 1997 for
the Company's Chief Executive Officer and the four additional most highly
compensated executive officers (the "Named Executive Officers").
Long Term
Annual Compensation(1) Compensation(2)
--------------------------------- ---------------
Securities All Other
Name and Principal Fiscal Salary(3) Bonus(3) Underlying Compensation(4)
Position Year $ $ Options # $
------------------ ------ --------- ---------- --------------- ---------------
Robert Margolis......... 1999 $550,000(5) $1,459,842(5) 5,000 $ --
Chairman and Chief
Executive Officer 1998 366,667(5)(6) 320,601(5) 8,277 2,000
1997 400,000(5) 375,000(5) 10,000 3,500
Patricia Warren......... 1999 296,154 -- 75,000 --
President 1998 216,667(6) -- 165,548 9,000
1997 325,000 100,000 -- 8,750
Carol Gratzke........... 1999 150,000 122,323 10,000 39,748
Chief Financial Officer 1998 100,000(6) 57,061 148,992 2,000
1997 125,000 50,000 10,000 3,500
Howard Siegel........... 1999 150,000 122,323 30,000 28,971
President-Operations 1998 90,000(6) 50,648 115,884 583
1997 135,000 25,000 10,000 333
Steven Ascher........... 1999 250,000 -- 20,000 --
Executive Vice
President 1998 48,077(7) -- -- --
- -------
(1) None of the Named Executive Officers earned Other Annual Compensation
except for perquisites which in no case exceeded the lesser of $50,000 or
10% of total annual salary and bonus for Fiscal 1999, the eight months
ended January 31, 1998 and for the year ended May 31, 1997, and as a
result, the corresponding column was 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) None of the Named Executive Officers received reserved stock awards or
long-term incentive plan pay-outs during the time covered by the Summary
Executive Compensation Table and, as a result, the corresponding columns
were omitted.
(4) Represents payments made in accordance with the Company's compensation in
lieu of dividend plan whereby each plan participant is paid an amount
equal to the cash dividends which would have been paid on the vested
option shares covered by stock options of the Company held by such
participant as if such shares had been purchased by such participant prior
to, and owned by such participant on, the record date and payment date for
such cash dividend. See "Compensation in Lieu of Dividends Plan" below.
(5) Mr. Margolis was appointed Chairman and Chief Executive Officer on May 4,
1995. Mr. Margolis provides his services to the Company pursuant to the
terms of the Wilstar Management Agreement. For Fiscal 1999, the eight
months ended January 31, 1998 and for the year ended May 31, 1997, Wilstar
received $550,000, $366,667 and $400,000, respectively, in annual
compensation for providing such services, is eligible for cash bonuses and
has received and subsequently exercised options to purchase the Company
common stock pursuant to the Wilstar Management Agreement. For Fiscal
1999, the eight months ended January 31, 1998 and for the year ended May
31, 1997, a bonus of $1,459,842, $320,601 and $375,000, respectively was
accrued for Wilstar. See "Employment Contracts and Management Agreements"
below for a further description of the Wilstar Management Agreement, as
amended. Prior to May 31, 1997, Mr. Margolis owned 50.1% of the stock of
Wilstar. Mr. Margolis became the sole stockholder of Wilstar through a
series of redemptions occurring on May 31, 1997 and June 23, 1997.
(6)Adjusted to reflect salary for the eight month period ending January 31,
1998.
(7) Steven Ascher joined Cherokee Inc. as Executive Vice President on November
1, 1997.
7
Option Grants in Last Fiscal Year
Set forth below is further information on grants of stock options during
Fiscal 1999 to the Named Executive Officers.
Potential
Realizable Value
Percentage at Assumed Annual
of total Rates of
Number of Options Stock Price
Securities Granted to Exercise Appreciation for
Underlying Employees or Base Option Term (1)
Options in Fiscal Price Expiration -----------------
Name Granted # 1999 ($/Share) Date 5% 10%
---- ---------- ---------- --------- ------------- -------- --------
Robert Margolis......... 5,000 2.9% $ 10.50 June 8, 2009 $ 33,017 $ 83,671
Patricia Warren......... 18,750(2) 10.8% $ 7.875 Feb. 1, 2003 $ 92,860 $235,326
Carol Gratzke........... 2,500 1.4% $ 7.875 Feb. 1, 2003 $ 12,381 $ 31,377
Carol Gratzke........... 2,500 1.4% 8.66 Feb. 1, 2003 13,615 34,504
Carol Gratzke........... 2,500 1.4% 9.54 Feb. 1, 2003 14,999 38,011
Carol Gratzke........... 2,500 1.4% 10.48 Feb. 1, 2003 16,477 41,756
Howard Siegel........... 30,000 17.3% $8.4375(3) Oct. 21, 2003 $159,188 $403,415
Steven Ascher........... 20,000 11.5% $8.4375(3) Oct. 21, 2003 $106,125 $268,944
- --------
(1) The actual value, if any, the 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, so that there is no assurance the value
realized by the Named Executive Officer will be at or near the value
shown.
(2) Ms. Warren was granted 75,000 options during Fiscal 1999, exercisable in
four installments. Due to Ms. Warren's resignation, she has vested in
18,750 of the 75,000 options granted.
(3) The options vest in equal shares over a three-year period. If the
grantee's employment is terminated under certain circumstances or there
is a restructuring of the Company as set forth in the option agreement,
these options would become immediately exercisable.
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 1999 and prior years
to the Named Executive Officers, and held by them at January 30, 1999. During
Fiscal 1999, the Named Executive Officers exercised options and purchased
5,000 shares of stock.
Number of Unexercised $ Value of
Options at In-the-Money Options at
January 30, 1999 January 30, 1999(1)
------------------------- -------------------------
Shares acquired Value
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ------------ ----------- ------------- ----------- -------------
Robert Margolis......... 5,000 $55,000 -- -- $-- $--
Patricia Warren......... -- $ -- 101,524 -- $-- $--
Carol Gratzke........... -- $ -- 79,496 79,496 $-- $--
Howard Siegel........... -- $ -- 57,942 87,942 $-- $--
Steven Ascher........... -- $ -- -- 20,000 $-- $--
- --------
(1) Based on the closing price of the NASDAQ National Market System on January
29, 1999 ($7.875), net of the option exercise price.
Employment Contracts and Management Agreements
On April 24, 1995, a group which included Mr. Margolis (the "Group")
acquired approximately 22.3% of the Company's then outstanding common stock.
The Group sought to have Mr. Margolis installed as Chief Executive Officer and
appointed a director of the Company. On May 4, 1995, the Company and Wilstar
entered into the Wilstar Management Agreement pursuant to which Wilstar agreed
to provide executive management
8
services to the Company by providing the services of Robert Margolis as Chief
Executive Officer. The Wilstar Management Agreement originally provided it
would terminate on May 31, 1998; however, the Wilstar Management Agreement
provided an automatic extension for additional one-year terms as long as the
Company's pre-tax earnings are equal to at least 80% of the pre-tax earnings
contained in the budget submitted to and approved by the Board of Directors
for such fiscal year. During Fiscal 1996, Wilstar met the 80% pre-tax earnings
rule; hence, the contract was extended for an additional one year term. In
addition, Wilstar received an option to purchase 7.5% of the Company's common
stock on a fully diluted basis (675,670 shares) at a purchase price of $3.00
per share (the "Wilstar Options"). All of these Wilstar options were exercised
on December 29, 1997 and the shares issued were subsequently transferred
pursuant to the terms of the Wilstar redemption agreement.
On April 24, 1996, the Board of Directors revised the Wilstar Management
Agreement to accelerate the vesting of Wilstar's Performance Options so that
Wilstar was immediately vested in its right to purchase up to 20% of the
Company's fully diluted common stock. Wilstar agreed to relinquish its rights
to purchase up to an additional 2.5% of the Company's fully diluted stock
pursuant to the Wilstar Performance Options. Wilstar exercised the Wilstar
Performance Options in full on April 25, 1996 and purchased 1,674,739 shares.
The Company accounted for this transaction as a non-cash charge to earnings of
$4,567,000. On two separate occasions, Wilstar transferred these shares of
stock to its principals in satisfaction of loans, bonuses, etc. and in
accordance with the terms of Wilstar's redemption agreement.
The Wilstar Management Agreement further provides that Wilstar and the Group
together have the right to elect two members of the Company's Board of
Directors.
Effective for services rendered on or after June 1, 1997, the Compensation
Committee and the Board of Directors amended the Wilstar Management Agreement
by the adoption of two amendments, designated, respectively, the Second
Amendment and the Third Amendment. The changes to the Wilstar Management
Agreement made by the Second amendment include (1) extension of the specified
term of the Wilstar Management Agreement to May 31, 2000; (2) modification of
the existing provision of the Wilstar Management Agreement for automatic
extension of its term for an additional year for each year after fiscal year
1997 in which the Company achieves specified levels of pre-tax earnings; (3)
increase in the annual base compensation of Wilstar from $400,000 to $550,000;
(4) provision for an annual cost-of-living increase in base compensation after
fiscal year 1998; and (5) increase in the annual performance bonus percentage
payable to Wilstar based on the Company's earnings before interest, taxes,
depreciation and amortization above specified levels from 10% to 15% of such
earnings in excess of $10,000,000.
The Third Amendment, approved by a majority of shareholders on September 15,
1997 at the 1997 Annual Meeting, effected additional changes to the Wilstar
Management Agreement. One change provided for payment of an "acquisition
bonus" to Wilstar in the event of an acquisition of the Company for a price
per share of not less than $12 (after giving effect to the extraordinary
dividend paid by the Company on January 15, 1998), pursuant to an acquisition
agreement entered into by the end of fiscal year 2000. The amount of the
acquisition bonus ranges from $1,000,000 to $2,500,000 in the event of an
acquisition of the Company for a price per share ranging from $12 to $15
(after giving effect to the extraordinary dividend paid by the Company on
January 15, 1998) or more and automatically decreases by one-third per year if
the acquisition agreement is not entered into by the end of May 31, 1998,
1999, or 2000. Another change to the Wilstar Agreement provided for payment of
$3,000,000 to Wilstar in consideration for an agreement not to compete with
the Company for a specified period of time by Wilstar and Mr. Margolis in the
event of an acquisition of the Company pursuant to an acquisition agreement
entered into by the end of May 31, 2000. The amount of the payment
automatically decreases by one-third per year if the acquisition agreement is
not entered into by the end of May 31, 1998, 1999, or 2000.
Ms. Warren, the former President of the Company, who resigned March 3, 1998,
was employed pursuant to a three-year agreement expiring May 30, 1998 which
provided for a salary at an annual rate of $100,000 from June 21, 1995 to May
31, 1996 and $325,000 from June 1, 1996 to May 30, 1998. Under her employment
agreement, Ms. Warren was paid her salary through December 4, 1998 and became
eligible to exercise 41,387 options.
9
Compensation in Lieu of Dividends Plan
In January 1997, the Board of Directors adopted a plan for compensation of
officers of the Company, employees of the Company, and Wilstar in lieu of cash
dividends. Under the plan, when cash dividends were paid on outstanding shares
of common stock of the Company, compensation was paid to each plan participant
in an amount equal to the cash dividends which would have been paid on the
vested options shares covered by stock options of the Company held by such
participant as if such shares had been purchased by such participant prior to,
and were outstanding and owned by such participant on, the record date and the
payment date for such cash dividend. The plan began on January 15, 1997 and
terminated on December 31, 1998. During Fiscal 1999 and the eight months ended
January 31, 1998, an aggregate of $81,134 and $150,801, respectively, was paid
to participants in the plan.
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 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
30, 1999 balance sheet. The principal amount of the note and all accrued
interest thereon 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, 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
$1,500,000. During Fiscal 1999, per the terms of the agreement, the Company
made payments to Sideout Sport Inc. totaling $650,153.
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" above.
Report of Executive Compensation Committee
The Compensation Committee of the Board of Directors makes this report on
executive compensation pursuant to Item 402 of 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 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.
The Compensation Committee reviews the performance of the Chief Executive
Officer of the Company, makes recommendations to the Board of Directors as to
the compensation of the Chief Executive Officer and the other executive
officers of the Company and reviews compensation programs for any other key
employee, including salary and cash bonus levels and the stock option grants
under the Company's 1995 Incentive Stock Option Plan.
Compensation Policies and Philosophy. The Company's executive compensation
policies are designed to attract, retain and reward executive officers who
contribute to the Company's success, to provide economic incentives for
executive officers to achieve the Company's business objectives by linking the
executive officers' compensation to the performance of the Company, to
strengthen the relationship between executive pay and stockholder value and to
reward individual performance. The Company uses a combination of base salary,
cash bonuses and stock options to achieve these objectives.
In carrying out these objectives, the Compensation Committee considers the
following factors concerning the individual performance of executive officers:
(1) their ability to perform their given tasks; (2) knowledge of their jobs;
and (3) their ability to work with others toward the achievement of the
Company's goals. In addition,
10
the Compensation Committee evaluates corporate performance by looking at
factors such as performance relative to the business environment, and the
success of the Company in meeting its financial objectives. In anticipation of
ending/or in connection with renegotiating the Wilstar Management agreement,
the Compensation Committee reviews the individual performance of the Chief
Executive Officer. As appropriate, the Compensation Committee approves the
recommendations of the Chief Executive Officer relating to the compensation of
the other executive officers.
The Compensation Committee has reviewed the impact of Section 162(m) of the
Internal Revenue Code which, beginning in 1994, 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. Executive officer salaries are established in
relation to a range of salaries for comparable positions among companies of
comparable size and complexity with the exception of the Chief Executive
Officer salary which is based upon a three (3) year contract with The Newstar
Group d/b/a The Wilstar Group. The Company seeks to pay its executive officers
salaries that are commensurate with the qualifications, duties and
responsibilities that are competitive in the marketplace. In making its annual
salary recommendation, the Compensation Committee looks at the Company's
financial position and performance and the overall contribution of the
executive officers as a group during the prior fiscal year in helping to meet
the Company's financial and business objectives. The Compensation Committee
recommends and approves any changes to the original and amended Wilstar
Management Agreement. The Compensation Committee also makes recommendations on
a range of salary changes for the other executive officers as well.
Stock option grants and annual cash bonuses to executive officers are used
to provide executive officers with financial incentives to meet annual
performance targets of the Company. Since stock options have value only if the
price of the Company's common stock increases over the exercise/grant 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 believes that these grants, which may
vest over a period of two or more years, also provide incentives for executive
officers to stay with the Company. The size of the option grants is usually
based upon factors such as comparable equity compensation offered by other
companies, the seniority of the executive officer and the contribution that
the executive officer is expected to make to the Company. In determining the
size of the periodic grants, the Compensation Committee also considers prior
grants to the executive officer and his or her expected contributions during
the succeeding fiscal year.
Compensation of the Chief Executive Officer. The Compensation Committee
reviews the performance of the Chief Executive Officer of the Company, as well
as other executives of the Company, annually. On May 4, 1995, the Company and
Wilstar entered into the Wilstar Management Agreement pursuant to which
Wilstar agreed to provide executive management services to the Company by
providing the services of Robert Margolis as Chief Executive Officer. On July
11, 1997, the Wilstar Management Agreement was amended to provide for (1)
management fees of $550,000 per year and (2) an annual performance bonus of
15% of the Company's earnings before interest, taxes, depreciation and
amortization, in excess of $10,000,000, which amendment was determined based
on a consideration of the various factors discussed above, including the
performance of the Company, the individual performance of Mr. Margolis and Mr.
Margolis' performance compared to various objective and subjective goals
established by the Board of Directors.
Respectfully submitted,
Compensation Committee
Mr. Timothy Ewing
Mr. Jess Ravich
Mr. Douglas Weitman
11
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 30, 1999. 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.
Comparison of Total Return*
Since June 27, 1995
AMONG CHEROKEE INC., THE NASDAQ INDEX COMPOSITE AND THE S & P 100-LT
[GRAPH APPEARS HERE]
27 Jun. 1995 Jan. 1996 Jan. 1997 Jan. 1998 Jan. 1999
------------ --------- --------- --------- ---------
Cherokee Inc.*.......... 100 127.07 263.97 516.43 580.77
NASDAQ Index Composite.. 100 113.97 149.41 176.72 275.76
S&P 100-Ltd............. 100 119.38 154.25 190.46 263.93
- --------
* Please note that the price of common stock set forth in the graph reflects:
the $0.60 per share dividend which was paid on May 30, 1996,
the $0.15 per share dividend which was paid on March 17, 1997,
the $0.20 per share dividend which was paid on May 30, 1997 and August 29,
1997,
the $5.50 per share dividend which was paid on January 15, 1998,
the $0.50 per share dividend which was paid on May 1, 1998,
the $0.25 per share dividend which was paid on August 3, 1998, and
the $0.25 per share dividend which was paid on November 5, 1998.
12
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16 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 1999, all Section 16(a)
filing requirements applicable to its officers, directors and ten percent
(10%) stockholders were met during Fiscal 1999.
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 1999,
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 2000 Annual Meeting
Any proposal relating to a proper subject which a stockholder may intend to
be presented for action at the next Annual Meeting of Stockholders must be
received by the Company no later than January 17, 2000, 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 30,
1999 of any matter a stockholder intends to propose for a vote at the 2000
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.
13
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
Los Angeles, California
Dated: May 7, 1999
14
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CHEROKEE INC.
1999 Annual Meeting of Stockholders, June 14, 1999
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 1999 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 June 14, 1999 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:
1. ELECTION OF DIRECTORS: [_] To VOTE FOR all nominees [_] To WITHHOLD AUTHORITY to
listed below. vote for all nominees listed below.
Robert Margolis, Timothy Ewing, Douglas Weitman, 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 7, 1999, and
a copy of the Company's Annual Report on Form 10-K for the fiscal year ended
January 30, 1999.
Dated: ______________ , 1999 -----------------------------
_____________________________
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.