Exhibit 10.3

EXCHANGE AGREEMENT

THIS EXCHANGE AGREEMENT (the “Agreement”) is dated this 3rd day of August, 2018,
and is entered into by and between Cherokee Inc., a Delaware corporation (the
“Company”), and each of the holders of a Participation (defined below) listed on
Schedule I hereto (each, a “Purchaser”).

WHEREAS, the Company and Gordon Brothers Finance Company, as agent (in such
capacity the “Senior Agent”) for itself and other Secured Parties (as defined in
the Senior Credit Agreement referred to below) (each individually, a “Senior
Creditor” and collectively, the “Senior Creditors”), among others, have entered
or concurrently will enter, into a Financing Agreement dated as of August 3,
2018 (the “Senior Credit Agreement”);  

WHEREAS, the loans made under the Senior Credit Agreement will be used to
refinance in part obligations outstanding under that certain Financing Agreement
(the “Existing Facility”), dated as of December 7, 2016 (as amended) entered
into by the Company, Cerberus Business Finance, LLC, a Delaware limited
liability company (“Cerberus”), as administrative agent and collateral agent,
and the lenders from time to time party thereto;

WHEREAS, the Purchasers have heretofore purchased junior participations in the
Existing Facility (the “Participations”) in the corresponding aggregate
principal amount set forth on Schedule I.

WHEREAS, in order to fully retire the Existing Facility concurrently with the
entry by the Company into the Senior Credit Agreement, Company and the
Purchasers have agreed to exchange the Participations for replacement
instruments issued directly by Company on substantially equivalent terms and
conditions as the Participations.  The replacement instruments shall consist of
those certain Subordinated Exchange Note(s), dated as of the date hereof, made
by Company in favor of each Purchasers or their designees, in the corresponding
aggregate original principal amounts set forth on Schedule I (the “Notes”, and
together with accrued and unpaid interest and reimbursable expenses, the
“Obligations”);

WHEREAS, the Obligations are secured by liens on that portion of the Collateral
in which the U.S. Loan Parties (defined in the Senior Credit Agreement) have an
interest pursuant to a Pledge and Security Agreements, identical in all material
respects, dated as of even date herewith made by the Company and its
Subsidiaries (defined below) that are party thereto in favor of the Purchasers
(collectively without differentiation the “Security Agreement”);

WHEREAS, payment and performance of the Obligations is guaranteed by the
Subsidiaries of Company that are party thereto pursuant to Guaranties dated as
of even date herewith made by the subsidiaries of the Company that are party
thereto in favor of each of the Purchasers (the collectively without
differentiation the “Guaranty” and collectively with the Notes and the Security
Agreement, each in form and substance acceptable to the Purchasers, the
“Exchange Documents”);

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WHEREAS, Company and each of the Purchasers acknowledges that Section 4.1 of
this Agreement is for the exclusive benefit of Cove Street Capital and that no
other Purchaser party hereto or any successor or assign thereof shall have any
rights under, or be a party, to Section 4.1 of this Agreement; and

WHEREAS, in reliance upon the representations made by the Purchasers and the
Company in this Agreement, the transactions contemplated by this Agreement are
such that the offer and sale of securities by the Company under this Agreement
will be exempt from registration under applicable United States securities laws
as a result of the Exchange being undertaken pursuant to Section 4(a)(2) of the
Securities Act of 1933, as amended (the “Securities Act”), and/or Regulation D
promulgated thereunder.

NOW, THEREFORE, in consideration of the terms and conditions contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Company and the Purchaser hereby agree as follows:

Section 1.Exchange.  Subject to and upon the terms and conditions set forth in
this Agreement, the Purchasers agree to exchange with the Company, and the
Company agrees to exchange with the Purchasers, one or more Notes in favor of
each Purchaser or its designees and the other Exchange Documents (such
transaction, the “Exchange”) in the aggregate principal amount set for on
Schedule I in exchange for surrender of the Participations by the Purchasers to
the Company and delivery by the Purchasers of cash equal to the aggregate
principal amount set for on Schedule I (collectively, the “Exchange
Consideration”).  The Exchange Documents shall be in the form of EXHIBIT A
hereto.  

1.1Closing.  On the Closing Date (as defined below), upon the terms and subject
to the conditions set forth herein, the Company agrees to deliver the Exchange
Documents to Purchaser in exchange for the Exchange Consideration and the
Purchaser agrees to exchange the Exchange Consideration for the Exchange
Documents.  The closing of the Exchange (the “Closing”) shall occur on August 3,
2018, or on such other date as the parties may mutually agree in writing (the
“Closing Date”).  The Notes issuable at the Closing shall bear a restrictive
legend as follows:

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS AND
MAY BE OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, TRANSFERRED OR OTHERWISE
DISPOSED OF (EACH, A “TRANSFER”) ONLY IF SUCH SECURITIES ARE REGISTERED UNDER
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR IF SUCH TRANSFER
IS MADE PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND
SUCH STATE SECURITIES LAWS AFTER PROVIDING AN OPINION OF COUNSEL TO SUCH EFFECT.

1.2Section 4(a)(2).  Assuming the accuracy of the representations and warranties
of each of the Company and the Purchasers set forth in Section 2 and Section 3,
respectively, the parties acknowledge and agree that the purpose of such
representations and

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warranties is, among other things, to ensure that the Exchange qualifies as a
sale of securities under Section 4(a)(2) of the Securities Act.

1.3Deliveries.  

(a)On or prior to the Closing Date, the Company shall deliver or cause to be
delivered to the Purchasers:

(i)the Exchange Documents, fully executed by all parties thereto and in full
force and effect; and

(ii)The Registration Rights Agreement in the form attached hereto as EXHIBIT B
(the “Registration Rights Agreement”), fully executed by the Company.

(b)On or prior to the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:

(i)A written cancellation of such Purchaser’s Participation;

(ii)The cash portion of the Exchange Consideration, if any, payable by such
Purchaser by wire transfer in immediately available funds to the account
specified by the Company; and

(iii)The Registration Rights Agreement, fully executed by such Purchaser.

1.4Transaction Fee.  As further consideration for the Exchange and in addition
to the Exchange Consideration, no later than five (5) business days after the
Closing Date, the Company shall pay in cash (i) a transaction fee of $28,571 to
Cove Street Capital Small Cap Value Fund, (ii) a transaction fee of $21,429 to
Square Deal Growth, LLC, and (iii) a transaction fee of $50,000 to Ravich
Revocable Trust of 1989.

Section 2.Representations and Warranties of the Company.  The Company hereby
represents and warrants to each Purchaser, as of the date of this Agreement and
as of the Closing Date, that:

2.1Organization and Qualification.  The Company and each majority-controlled
subsidiary of the Company (collectively, the “Subsidiaries”) is an entity duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization, with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted.  Neither the Company, nor any
Subsidiary is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents.  Each of the Company and the Subsidiaries is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would not
reasonably be expected to result in:  (a) a material adverse effect on the
legality, validity or enforceability of this Agreement, the

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Notes, the Officer’s Certificate or the Registration Rights Agreement
(collectively, the “Exchange Documents”), (b) a material adverse effect on the
results of operations, assets, business or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (c) a material adverse
effect on the Company’s ability to perform in any material respect on a timely
basis its obligations under any Exchange Document (any of (a), (b) or (c), a
“Material Adverse Effect”), and no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.  For purposes of this
Agreement, a “controlled subsidiary of the Company” is a subsidiary of the
Company for which the Company has the power to vote or direct the voting of a
majority of the outstanding voting power, or for which the Company has the power
to elect a majority of the members of the board of directors or similar
governing body, in either case as of the date of this Agreement.

2.2Authorization; Enforcement.  The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
this Agreement and each of the other Exchange Documents and otherwise to carry
out its obligations hereunder and thereunder.  The execution and delivery of
this Agreement and each of the other Exchange Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company, and no
further action is required by the Company, the Board or the Company’s
stockholders in connection herewith or therewith.  This Agreement and each other
Exchange Document to which it is a party has been (or upon delivery will have
been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of
the Company enforceable against the Company in accordance with its terms.

2.3[Reserved].

2.4No Conflicts.  The execution, delivery and performance by the Company of this
Agreement and the other Exchange Documents to which it is a party, the issuance
of the Notes and the consummation by it of the transactions contemplated hereby
and thereby do not and will not:  (a) conflict with or violate any provision of
the Notes, the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, (b) conflict
with, or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, result in the creation of any options,
contracts, agreements, liens, security interests, or other encumbrances
(“Liens”) upon any of the properties or assets of the Company or any Subsidiary,
or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any Subsidiary
is a party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (c) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state securities laws
and regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of clauses (b) and
(c), such as would not have or reasonably be expected to result in a Material
Adverse Effect.

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2.5Acknowledgment Regarding the Exchange.  The Company acknowledges and agrees
that the Purchaser is acting solely in the capacity of an arm’s length third
party with respect to this Agreement and the transactions contemplated
hereby.  The Company also acknowledges that it is not relying on any advice or
representation of the Purchaser in connection with entering into this Agreement
or the transactions contemplated hereunder other than the representations made
by the Purchaser in this Agreement.  The Company further acknowledges the
Purchaser is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to this Agreement and the transactions
contemplated hereby, and any advice given by the Purchaser or any of its
respective representatives or agents in connection with this Agreement is merely
incidental to the Exchange.  None of the Company, any of its Affiliates or any
person acting on its or their behalf has conducted any general solicitation (as
that term is used in Rule 502(c) of Regulation D) or general advertising with
respect to any of the Notes, or made any offers or sales of any security or
solicited any offers to buy any security under any circumstances that would
require registration of the Notes under the Securities Act.

2.6SEC Reports; Financial Statements.  The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the
Company under the Securities Act and the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), including pursuant to Section 13(a) or 15(d) of
the Exchange Act, for the two years preceding the date of this Agreement (the
foregoing materials, including the exhibits thereto and documents incorporated
by reference therein, being collectively referred to herein as the “SEC
Reports”).  As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.  The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Securities Exchange Commission (the “SEC”) with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States applied on a consistent basis during the periods involved
(“GAAP”), except as may be otherwise specified in such financial statements or
the notes thereto and except that unaudited financial statements may not contain
all footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated Subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.  As of the date of this Agreement, there
are no outstanding or unresolved comments received from the staff of the SEC
with respect to the SEC Reports.

2.7Subsidiaries.  All of the direct and indirect subsidiaries of the Company are
set forth in the SEC Reports.  The capital stock or other equity interests of
each Subsidiary that are owned by the Company are owned by the Company free and
clear of any Liens, and all of the issued and outstanding shares of capital
stock of each Subsidiary of the Company that are owned by the Company are
validly issued and are fully paid, non-assessable and free of preemptive and
similar rights to subscribe for or purchase securities.

2.8[Reserved]  

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2.9Material Changes; Undisclosed Events, Liabilities or Developments.  Since the
date of the latest audited financial statements included within the SEC Reports,
except as specifically disclosed in a subsequent SEC Report filed prior to the
date of this Agreement:  (a) there has been no event, occurrence or development
that has had or that would reasonably be expected to result in a Material
Adverse Effect, (b) the Company has not incurred any liabilities (contingent or
otherwise) other than (i) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice, and (ii) liabilities
not required to be reflected in the Company’s financial statements pursuant to
GAAP or disclosed in filings made with the SEC, (c) the Company has not altered
its method of accounting, (d) the Company has not declared or made any dividend
or distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock, and (e) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option
plans.  Except for the issuance of the Notes contemplated by this Agreement and
the entry into the Senior Credit Agreement and the transactions related thereto,
no event, liability, fact, circumstance, occurrence or development has occurred
or exists or is reasonably expected to occur or exist with respect to the
Company or its Subsidiaries or their respective businesses, properties,
operations, assets or financial condition, that would be required to be
disclosed by the Company under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed prior
to the date that this representation is made.

2.10Litigation.  Except as disclosed in the SEC Reports, there is no action,
suit, inquiry, notice of violation, proceeding or investigation pending or, to
the knowledge of the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (a)
adversely affects or challenges the legality, validity or enforceability of any
of the Exchange Documents, (b) adversely affects or imposes any liabilities on
the Purchaser or any of its Affiliates with respect the Notes, or (c) would, if
there were an unfavorable decision, have or reasonably be expected to result in
a Material Adverse Effect.  Except as disclosed in the SEC Reports, none of the
Company, any Subsidiary, or any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.  To the
knowledge of the Company, there is no pending or contemplated investigation by
the SEC involving the Company or any current or former director or officer of
the Company.  The SEC has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.

2.11Compliance.  Except as disclosed in the SEC Reports, neither the Company nor
any Subsidiary:  (a) is in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both,
would result in a default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received any notice of a claim that it is in default
under or that it is in violation of, any indenture, loan or credit agreement or
any other agreement or instrument to which it is a party or by which it or any
of its properties is bound (whether or not such default or violation has been
waived), (b) is in violation of any judgment, decree or order of any court,
arbitrator or other governmental authority, or (c) is or has been in violation
of any statute, rule, ordinance or regulation of any governmental authority,
including

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without limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, anti-corruption, anti-money laundering, SEC reporting,
occupational health and safety, product quality and safety and employment and
labor matters (collectively, “Laws”), except in each case as would not have, or
reasonably be expected to result in, a Material Adverse Effect.  The Company
holds all material licenses, franchises, permits, certificates, approvals and
authorizations from each governmental body, or required by Laws or any
governmental body to be obtained, in each case necessary for the lawful conduct
of its business and operations as currently conducted (collectively,
“Permits”).  The Company is in compliance in all material respects with the
terms of all Permits.  To the Company’s knowledge, it has not received written
notice since April 19, 2018 (the date of filing the Company’s most recent Annual
Report on Form 10-K) to the effect that a governmental body (i) claimed or
alleged that the Company was not in compliance with all Laws applicable to the
Company, any of its properties or other assets or any of its business or
operations other than as previously disclosed to the Purchaser in writing, or
(ii) was considering the amendment, termination, revocation or cancellation of
any Permit.  The consummation of the transactions contemplated hereby, in and of
itself, will not cause the revocation or cancellation of any Permit.

2.12Certain Fees.  No brokerage or finder’s fees or commissions are or will be
payable by the Company or any Subsidiaries to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by the Exchange Documents.

2.13Investment Company.  The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Notes, will not be or be an
Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.  The Company shall conduct its business in a
manner so that it will not become an “investment company” subject to
registration under the Investment Company Act of 1940, as amended.

2.14Disclosure.  All of the disclosure furnished by or on behalf of the Company
to the Purchaser regarding the Company and its Subsidiaries, their respective
businesses and the transactions contemplated hereby, is true and correct in all
material respects and does not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading.  The Company acknowledges and agrees that the Purchaser makes no,
nor has made any, representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.

2.15Taxes.  The Company and the Subsidiaries have filed all federal, state,
local and foreign tax returns that have been required to be filed and paid all
taxes shown thereon through the date of this Agreement, to the extent that such
taxes have become due and are not being contested in good faith, except where
the failure to do so would not reasonably be expected to have a Material Adverse
Effect.  Except as disclosed in the SEC Reports, no tax deficiency has been
determined adversely to the Company or any Subsidiary which has had, or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.  The Company has no knowledge of any federal, state or other
governmental tax deficiency, penalty or assessment which has been or might be
asserted or threatened against it which would reasonably be expected to have a
Material Adverse Effect.

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2.16Intellectual Property.  The Company and the Subsidiaries own or possesses or
have valid right to use all patents, patent applications, trademarks, service
marks, trade names, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets and similar rights
(“Intellectual Property”) necessary for the conduct of the business of the
Company and its subsidiaries as currently carried on, except as such failure to
own, possess, license or acquire such rights has not had and would not
reasonably be expected to have, singularly or in the aggregate, a Material
Adverse Effect.  To the knowledge of the Company, no action or use of such
Intellectual Property by the Company or any of its subsidiaries gives rise to
any infringement or misappropriation of the Intellectual Property of
others. Neither the Company nor the Subsidiaries has received any notice, or has
actual knowledge of any pending notice, in each case alleging any such
infringement.

2.17Disclosure Controls.  The Company maintains systems of internal accounting
controls designed to provide reasonable assurance that (a) transactions are
executed in accordance with management’s general or specific authorizations; (b)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability; (c)
access to assets is permitted only in accordance with management’s general or
specific authorization; and (d) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.  Except as disclosed in the SEC
Reports, the Company is not aware of any material weakness in its internal
control over financial reporting.  Since the date of the latest audited
financial statements of the Company included within the SEC Reports, there has
been no change in the Company’s internal control over financial reporting that
has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.  The Company has
established disclosure controls and procedures (as defined in Exchange Act Rules
13a-15 and 15d-15) for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company and the
Subsidiaries is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s Annual Report on
Form 10-K or Quarterly Report on Form 10-Q, as the case may be, is being
prepared.  The Company’s certifying officers have evaluated the effectiveness of
the Company’s controls and procedures as of a date within 90 days prior to the
filing date of the Annual Report on Form 10-K for the fiscal year most recently
ended (such date, the “Evaluation Date”).  The Company presented in its Annual
Report on Form 10-K for the fiscal year most recently ended the conclusions of
the certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the most recent Evaluation
Date.  Since the most recent Evaluation Date, there have been no significant
changes in the Company’s internal controls (as such term is defined in Item
307(b) of Regulation S-K under the Securities Act) or, to the Company’s
knowledge, in other factors that would significantly adversely affect the
Company’s internal controls.

2.18No “Bad Actor” Disqualifying Events.  No “Bad Actor” disqualifying event
described in Rule 506(d)(1)(i) to (viii) of the Securities Act (a
“Disqualification Event”) is applicable to the Company, except for a
Disqualification Event as to which Rule 506(d)(2)(ii–iv) or (d)(3), is
applicable; provided that, for purposes of this representation and warranty, the
Company relied exclusively on completed and executed questionnaires delivered to
the Company by its directors and executive officers and beneficial owners of
twenty percent (20%) or more of the Company’s outstanding voting equity
securities.

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2.19Foreign Corrupt Practices Act.  None of the Company, the Subsidiaries, or,
to the knowledge of the Company, any agent or other person acting in the course
of its actions on behalf of the Company or the Subsidiaries, has, directly or
indirectly, (i) used any corporate funds, or will use any proceeds from the sale
of the Notes, for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) made any
unlawful influence payment to foreign or domestic government officials or to any
foreign or domestic political parties or campaigns from corporate funds, or
(iii) violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended, and the rules and regulations thereunder
which was or is applicable to the Company or any of the Subsidiaries.

2.20Compliance with Anti-Money Laundering Laws.  The operations of the Company
are and have been conducted at all times in compliance with applicable financial
recordkeeping and reporting requirements and all other applicable U.S. and
non-U.S. anti-money laundering laws and regulations, including, but not limited
to, those of the Currency and Foreign Transactions Reporting Act of 1970, as
amended, the USA Patriot Act of 2001 and the applicable money laundering
statutes of all applicable jurisdictions, the rules and regulations thereunder
and any related or similar rules, regulations or guidelines, issued,
administered or enforced by any governmental agency (collectively, the
“Anti-Money Laundering Laws”), the Company has in place policies and procedures
reasonably designed to ensure that its and its Subsidiaries’, if any, operations
will continue to be conducted in compliance with all applicable Money Laundering
Laws and no action, suit or proceeding by or before any court or governmental
agency, authority or body or any arbitrator involving the Company or the
Subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to
the knowledge of the Company, threatened.

2.21Sarbanes-Oxley Act.  The Company is in compliance in all material respects
with any and all applicable requirements of the Sarbanes-Oxley Act of 2002, as
amended, that are effective as of the date hereof, and any and all applicable
rules and regulations promulgated by the SEC thereunder that are effective as of
the date hereof.

2.22Application of Takeover Protections.  The Company and the Board have taken
all necessary action, if any, in order to render inapplicable any control share
acquisition, interested stockholder, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation, Bylaws or other
organizational documents or the laws of the jurisdiction of its formation which
is or could become applicable to the Purchaser as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company’s
issuance of the Notes and the Purchaser’s ownership of the Notes.

2.23Insurance.  The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the business in which the
Company is engaged.  The Company has not been refused any insurance coverage
sought or applied for, the refusal of which would reasonably be expected to have
a Material Adverse Effect.  The Company has no reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not reasonably be expected to have
a Material Adverse Effect.

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2.24Title.  The Company has marketable title to all personal property owned by
it which is material to the business of the Company, in each case free and clear
of all Liens except for Liens which do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be
made of such property by the Company.  Any real property and facilities held
under material lease by the Company are held by it under valid and enforceable
leases with such exceptions as are not material and do not materially interfere
with the use made and proposed to be made of such property and buildings by the
Company.

Section 3.Representations and Warranties of each Purchaser.  Each Purchaser
represents and warrants to the Company solely on its own behalf and not with
respect to any other Purchaser, as of the date of this Agreement and as of the
Closing Date, that:

3.1No Public Sale or Distribution.  The Purchaser and its designees are
acquiring the Notes in the ordinary course of business for their own accounts
and not with a view toward, or for resale in connection with, the public sale or
distribution thereof.  The Purchaser does not presently have any agreement or
understanding, directly or indirectly, with any person not managed or advised by
Purchaser to distribute, or transfer any interest or grant participation rights
in the Notes.

3.2Accredited Investor Status.  The Purchaser is an “accredited investor” as
that term is defined in Rule 501 of Regulation D under the Securities Act.  

3.3Reliance on Exemptions.  The Purchaser understands that the Exchange is being
made in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
in part upon the truth and accuracy of, and the Purchaser’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of the Purchaser to complete the Exchange and to
acquire the Notes.

3.4Information.  The Purchaser has been furnished with all materials relating to
the business, finances and operations of the Company and materials relating to
the Exchange which have been requested by the Purchaser.  The Purchaser has been
afforded the opportunity to ask questions of the Company.  Neither such
inquiries nor any other due diligence investigations conducted by the Purchaser
or its representatives shall modify, amend or affect the Purchaser’s right to
rely on the Company’s representations and warranties contained herein.  The
Purchaser acknowledges that all of the documents filed by the Company with the
SEC under Sections 13(a), 14(a) or 15(d) of the Exchange Act that have been
posted on the SEC’s EDGAR site are available to the Purchaser.

3.5Risk.  The Purchaser understands that its investment in the Notes involves a
high degree of risk.  The Purchaser is able to bear the risk of an investment in
the Notes including, without limitation, the risk of total loss of its
investment.  The Purchaser has sought such accounting, legal and tax advice as
it has considered necessary to make an informed investment decision with respect
to the Exchange.  The Purchaser is not relying on any advice or representation
of the Company in connection with entering into this Agreement or the
Registration Rights Agreement or the transactions contemplated hereunder or
thereunder (other than the

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representations made by the Company in this Agreement) and has not received from
the Company any assurance or guarantee as to the merits (whether legal,
regulatory, tax, financial or otherwise) of entering into this Agreement or the
Registration Rights Agreement or the performance of the Purchaser’s obligations
hereunder or thereunder.

3.6No Governmental Review.  The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement in connection with the
Exchange or the fairness or suitability of the investment in the Notes.

3.7Organization; Authorization.  The Purchaser is duly organized, validly
existing and in good standing under the laws of jurisdiction of its
incorporation or organization and has the requisite organizational power and
authority to enter into and perform its obligations under this Agreement and the
Registration Rights Agreement.

3.8Validity; Enforcement.  This Agreement and the Registration Rights Agreement
have been duly and validly authorized, executed and delivered on behalf of the
Purchaser and constitute the legal, valid and binding obligations of the
Purchaser enforceable against the Purchaser in accordance with their terms.  The
execution, delivery and performance of this Agreement and the Registration
Rights Agreement by the Purchaser and the consummation by the Purchaser of the
transactions contemplated hereby and thereby will not result in a violation of
the organizational documents of the Purchaser.

3.9Prior Investment Experience.  The Purchaser acknowledges that it has prior
investment experience, including investment in securities of the type being
sold, including the Notes, and has read all of the documents furnished or made
available by the Company to it and is able to evaluate the merits and risks of
such an investment on its behalf, and that it recognizes the highly speculative
nature of this investment.

3.10Tax Consequences.  The Purchaser acknowledges that the Company has made no
representation regarding the potential or actual tax consequences for the
Purchaser that will result from entering into this Agreement and from
consummation of the Exchange.  The Purchaser acknowledges that it bears complete
responsibility for obtaining adequate tax advice for the Purchaser itself
regarding this Agreement and the Exchange.

3.11No Registration, Review or Approval; Restricted Securities.  The Purchaser
acknowledges, understands and agrees that the Notes are being sold hereunder
pursuant to an offer exemption under Section 4(a)(2) of the Securities Act
and/or the safe harbor provided under Regulation D promulgated thereunder.  The
Purchaser understands that the Notes constitute “restricted securities” within
the meaning of Rule 144 under the Securities Act and may not be sold, pledged or
otherwise disposed of unless they are subsequently registered under the
Securities Act and applicable state securities laws or unless an exemption from
registration thereunder is available.

3.12Jurisdiction.  The Purchaser made its investment decision to purchase the
Notes at its offices located at the address set forth on the Purchaser’s
signature page hereto.  The

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Purchaser’s principal place of business is located in the jurisdiction listed in
the address set forth on the Purchaser’s signature page hereto.

3.13Exculpation.  The Purchaser acknowledges that it is not relying upon any
Person, other than the Company and its officers and directors, in making its
investment or decision to invest in the Company.

3.14No Disqualifying Events.  Neither (a) the Purchaser; nor (b) any of the
Purchaser’s directors, executive officers, other officers that may serve as a
director or officer of any company in which it invests, general partners or
managing members, is subject to any of Disqualification Events, except for
Disqualification Events covered by Rule 506(d)(2)(ii) or (iii) or (d)(3) under
the Securities Act and disclosed reasonably in advance of the Closing in writing
in reasonable detail to the Company.

Section 4.Covenants of the Company.

4.1Board Representation. On and after the Closing Date, Cove Street Capital
shall be entitled to designate two (2) qualified individuals (each a “Designated
Nominee”) to serve on the Board.  Each Designated Nominee shall, as a condition
of his/her appointment to the Board, execute and deliver a letter agreement in
form and substance satisfactory to Cove Street Capital, agreeing to immediately
resign from the Board upon request of the Cove Street Capital; provided that a
Designated Nominee’s refusal to resign when so requested shall constitute
“cause” for removal from the Board and the Board and the Company shall use their
best efforts to support Cove Street Capital’s exercise of its board designation
rights.  The Cove Street Capital also shall be entitled to designate one (1)
qualified Designated Nominee to serve on each committee of the Board.  The
parties agree that Robert Longnecker shall be an initial Designated Nominee.  
Cove Street Capital intends to designate a second Designated Nominee within 30
days after the date of this Agreement, subject to extension by Cove Street
Capital.  The Company shall use its best efforts to ensure that the Company’s
director’s and officer’s insurance covers the Designated Nominees as directors
and shall propose a director’s compensation program that, in each case, is
commensurate with market standards.  At any time that less than two (2)
Designated Nominees are seated on the Board, the Company and the Board shall
maintain a vacancy or vacancies on the Board for such Designated Nominee(s) and
shall use their best efforts and take such actions during the Representation
Period (as defined below) as may be necessary to ensure that the Designated
Nominees are duly seated at all times.  If the size of the Board is expanded,
for any reason, the Cove Street Capital shall have the right to designate
additional Board nominees in order to maintain its proportionate representation
as of the Closing Date.   The rights under this paragraph shall continue for as
long as the Cove Street Capital and its affiliates collectively beneficially own
at least 5% of the Company’s outstanding common stock (the “Representation
Period”).  Each of the Purchasers other than Cove Street Capital acknowledges
and agrees that the terms and conditions of this Section 4.1 inure solely to the
benefit of Cove Street Capital and no other Purchaser shall have or be entitled
to exercise any of the rights granted to Cove Street Capital under this Section
4.1.  Only Cove Street Capital, acting in its sole and absolute discretion,
shall have the power hereunder to designate a Designated Nominee.  Each other
Purchaser hereby further acknowledges and agrees that only Cove Street Capital
and Company shall have the power to, and only the concurrence of Cover Street
Capital and the Company shall be required to, enter into an effective waiver,
amendment or modification of this Section 4.1.  In furtherance of the

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foregoing, each Purchaser other than Cove Street Capital hereby waives any right
that it may otherwise have in equity, at law or by contract to consent to a
waiver, amendment or modification under this Section 4.1.

4.2Warrants.  Concurrent with the Closing, the Company shall issue and deliver
to each of the Purchasers named on Schedule II a warrant or warrants in
substantially the form attached here to as EXHIBIT B (the “Warrant”) exercisable
for the number of shares of the Company’s Common Stock set forth opposite such
Purchaser’s name on Schedule II with an exercise price per share as set forth on
Schedule II hereto.  Each Warrant shall be issued to such parties and in such
amounts as are designated by the Purchaser consistently with Schedule II prior
to the Closing Date.

Section 5.Conditions Precedent to Obligations of the Company.  The obligation of
the Company to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of each of the following conditions; provided that
these conditions are for the Company’s sole benefit and may be waived by the
Company at any time in its sole discretion by providing the Purchaser with prior
written notice thereof:

5.1Delivery of Exchange Consideration.  The Purchaser shall have delivered to
the Company the Exchange Consideration;

5.2No Prohibition.  No order of any court, arbitrator or governmental or
regulatory authority shall be in effect which purports to enjoin or restrain any
of the transactions contemplated by this Agreement;

5.3Representations.  The representations and warranties of the Purchaser
contained in Section 3 shall be true and correct in all material respects (other
than representations and warranties which are already qualified as to
materiality, which shall be true and correct in all respects) as of the date
when made and as of the Closing Date, as though made on and as of such date,
except for such representations and warranties that speak as of a specific date,
which shall be true and correct as of such specified date; and

Section 6.Conditions Precedent to Obligations of the Purchaser.  The obligation
of the Purchaser to consummate the transactions contemplated by this Agreement
is subject to the satisfaction of each of the following conditions; provided
that these conditions are for the Purchaser’s sole benefit and may be waived by
the Purchaser, on behalf of itself, at any time in its sole discretion by
providing the Company with prior written notice thereof:

6.1Delivery.  The Company shall have delivered or caused to be delivered to the
Purchaser the items set forth in Section 1.3(a);

6.2No Prohibition.  No order of any court, arbitrator, or governmental or
regulatory authority shall be in effect which purports to enjoin or restrain any
of the transactions contemplated by this Agreement;

6.3Representations.  The representations and warranties of the Company contained
in Section 2 shall be true and correct in all material respects (other than
representations and warranties which are already qualified as to materiality,
which shall be true and correct in all

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respects) as of the date when made and as of the Closing Date, as though made on
and as of such date, except for such representations and warranties that speak
as of a specific date, which shall be true and correct as of such specified
date; and

6.4Credit Facilities.  

6.4.1The Senior Credit Facility shall be, or concurrently will be, in form and
substance acceptable to Purchaser in its sole discretion, in full force and
effect and the term loans to be made thereunder shall have been or concurrently
will be advanced to the Company and used to repay the Existing Facility and a
complete set of documentation evidencing the Senior Credit Facility shall have
been or concurrently will be delivered to Purchaser.

6.4.2The entire outstanding balance due, save and except for the Participations
issued thereunder, under the Existing Facility shall have been or currently will
be  paid in full and in cash and all liens and security interests securing the
Existing Facility shall have been, or concurrently will be, terminated, and
Cerberus shall have, or concurrently will, deliver a customary “payoff letter”
acknowledging termination of the documentation for the Existing Facility and
payment in full of all obligations under the Existing Facility, and operatively
terminating all liens and security interests securing the Existing Facility.

Section 7.[Reserved]  

Section 8.Furnishing of Information.  As long as the Purchaser owns any Notes,
the Company covenants to use its best efforts to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date of this Agreement
pursuant to the Exchange Act.    

Section 9.Indemnification.  In addition to any other indemnity provided in the
Exchange Documents, the Company will indemnify and hold the Purchaser and its
directors, officers, stockholders, partners, employees, advisers, affiliates and
agents (each, a “Purchaser Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation (collectively, “Losses”) that any
such Purchaser Party may suffer or incur as a result of or relating to (a) any
misrepresentation, breach or inaccuracy of any representation, warranty,
covenant or agreement made by the Company in any Exchange Document, and (b) any
action instituted against a Purchaser Party in any capacity, or any of them or
their respective affiliates, by any individual who is not an affiliate of such
Purchaser Party, with respect to any of the transactions contemplated by this
Agreement.  In addition to the indemnity contained herein, the Company will
reimburse each Purchaser Party for its reasonable legal and other expenses
(including the cost of any investigation, preparation and travel in connection
therewith) incurred in connection therewith, as such expenses are incurred.

Section 10.Governing Law; Jurisdiction; Waiver of Jury Trial.  This Agreement
shall be construed under the laws of the State of Delaware, without regard to
principles of conflicts of law or choice of law that would permit or require the
application of the laws of another jurisdiction.  The Company and the Purchaser
hereby agree that all actions or proceedings arising directly or indirectly from
or in connection with this Agreement shall be litigated only in the Superior
Court

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of the State of California or the United States District Court for the Southern
District of California located in Los Angeles County, California.  The Company
and the Purchaser consent to the exclusive jurisdiction and venue of the
foregoing courts and consents that any process or notice of motion or other
application to either of said courts or a judge thereof may be served inside or
outside the State of California or the Southern District of California by
generally recognized overnight courier or certified or registered mail, return
receipt requested, directed to such party at its or his address set forth below
(and service so made shall be deemed “personal service”) or by personal service
or in such other manner as may be permissible under the rules of said
courts.  THE COMPANY AND THE PURCHASER HEREBY WAIVES ANY RIGHT TO A JURY TRIAL
IN CONNECTION WITH ANY LITIGATION PURSUANT TO THIS AGREEMENT.

Section 11.Counterparts.  This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a .pdf or other form of
electronic signature shall be considered due execution and shall be binding upon
the signatory thereto with the same force and effect as if the signature were an
original, not a .pdf or other form of electronic signature.

Section 12.Headings.  The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

Section 13.Fees and Expenses.  The Company shall promptly pay or reimburse the
Purchaser upon request for the fees and expenses of legal counsel incurred by
the Purchaser in connection with the transactions contemplated by this
Agreement.

Section 14.Severability.  If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

Section 15.Entire Agreement; Amendments.  This Agreement supersedes all other
prior oral or written agreements between the Purchaser, the Company, their
Affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement, the Notes and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Purchaser makes any representation,
warranty, covenant or undertaking with respect to such matters.  No provision of
this Agreement may be amended, waived or modified other than by an instrument in
writing signed by the Company and the Purchaser.  Any such amendment, waiver or
modification effected in accordance with this Section 15 shall be binding upon
the Purchaser and each transferee of the Notes, each future holder of all such
securities and the Company.

Section 16.Notices.  Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (a) upon receipt, when
delivered personally; (b) upon receipt, when sent by e-mail (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (c) one calendar day (excluding
Saturdays, Sundays, and

15

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national banking holidays in the United States) after deposit with an overnight
courier service, in each case properly addressed to the party to receive the
same.

The addresses and e-mail addresses for such communications shall be:

If to the Company:

Cherokee Inc.

5990 Sepulveda Boulevard, Suite 600

Sherman Oaks, CA 91411

E-mail:  henrys@cherokeeglobalbrands.com

Attn:  Henry Stupp

With a copy (which shall not constitute notice) to:

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

3580 Carmel Mountain Road, Suite 300

San Diego, CA 92130

E-mail:  smstanton@mintz.com

Attn:  Scott Stanton, Esq.

If to a Purchaser:  To the address set forth on the Purchaser’s signature page
hereto;

or to such other address and/or e-mail address and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.

Section 17.Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes.

Section 18.No Third Party Beneficiaries.  This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

Section 19.Survival of Representations.  The representations, warranties and
covenants of the Company and the Purchaser contained in this Agreement shall
survive the Closing and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of the Purchaser or the
Company.  The Company shall indemnify and hold harmless the Purchaser for any
and all losses suffered by the Purchaser as a result of, in connection with, or
relating to, any breach by the Company of any representation, warranty and/or
covenant of the Company in this Agreement or in any certificate, document or
other writing delivered by the Company to the Purchaser pursuant to this
Agreement.

Section 20.Further Assurances.  Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in

16

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order to carry out the intent and accomplish the purposes of this Agreement and
the consummation of the transactions contemplated hereby.

[Signature Page Follows]

 

17

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IN WITNESS WHEREOF, the parties have executed this Exchange Agreement as of the
date first written above.

 

COMPANY:

CHEROKEE INC.

 

 

By:

/s/

Henry Stupp

Name:

 

Henry Stupp

Title:

 

Chief Executive Officer

 

 

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Exchange Agreement as of the
date first written above.

 

Cove Street Capital, LLC

 

 

By:

/s/

Eugene Robin

Name:

 

Eugene Robin

Title:

 

Principal

 

Cove Street Capital Small Cap Value Fund, a series of Managed Portfolio Series,
a Delaware statutory trust

 

By:

Cove Street Capital, LLC

 

Its Investment Advisor

 

By:

/s/ Eugene Robin

 

Name:

Eugene Robin

 

Title:

Principal

 

 

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Exchange Agreement as of the
date first written above.

 

Square Deal Growth, LLC

an Oklahoma limited liability company

 

By:

Cove Street Capital, LLC

 

Its Investment Advisor

 

By:

/s/ Eugene Robin

 

Name:

Eugene Robin

 

Title:

Principal

 

 

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Exchange Agreement as of the
date first written above.

 

Ravich Revocable Trust of 1989, a trust established by Jess M. Ravich

 

By:

/s/

Jess M. Ravich

Name:

 

Jess M. Ravich

Title:

 

Trustee

 

 

Address:

149 S. Barrington Ave, #828

 

Los Angeles, CA 90049

 

 

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Exchange Agreement as of the
date first written above.

 

HENRY I STUPP

 

 

By:

/s/

Henry Stupp

Name:

 

 

Title: