EXHIBIT 10.2


 


CHEROKEE INC.


 


STOCK OPTION AGREEMENT


 


THIS
AGREEMENT, dated August 26, 2010, is made by and between Cherokee Inc., a
Delaware corporation, hereinafter referred to as the “Company,” and Henry
Stupp, a member of the Company’s Board of Directors (the “Board”) and an
executive officer of the Company, hereinafter referred to as “Optionee.”


 


WHEREAS,
the Company wishes to afford the Optionee the opportunity to purchase shares of
its Common Stock, par value $0.02 per share (“Common Stock”); and


 


WHEREAS,
following the approval of that certain Employment Agreement between the Company
and the Optionee, dated as of August 26, 2010, (the “Employment Agreement”)
by each of the Company’s Compensation Committee (the “Committee”) and the
Board, the Committee has determined that it would be to the advantage and best
interest of the Company and its stockholders to grant the non-qualified stock
option (the “Option”) provided for herein to the Optionee as an inducement to
enter into or remain in the service of the Company as an executive officer and
member of the Board and as an incentive for increased efforts during such
service, and has advised the Company thereof and instructed the undersigned
officer to issue said Option; and


 


WHEREAS,
this Option constitutes a material inducement to the Optionee to accept
employment with the Company, consistent with Nasdaq Rule 5635(c)(4); and


 


NOW,
THEREFORE, in consideration of the mutual covenants herein contained and other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereto do hereby agree as follows:


 


ARTICLE I


 


GRANT OF OPTION


 


1.1          Grant of Option.  Pursuant to Section 3.4(d) of the
Employment Agreement, and in consideration of the Optionee’s agreement to
remain in the service of the Company as an executive officer and member of the
Board and for other good and valuable consideration, effective as of August 26,
2010 (the “Date of Grant”), the Company irrevocably grants to the Optionee the
option to purchase any part or all of an aggregate of 300,000 shares of Common
Stock, upon the terms and conditions set forth in this Agreement.  The Option is comprised of 300,000
Non-Qualified Stock Options, with the vesting schedule shown on page two, Section 2.1(a).  “Non-Qualified Stock Option” shall mean an
option not intended to qualify as an incentive stock option within the meaning
of Section 422 of the Internal Revenue Code, as amended (the “Code”) and
the regulations promulgated thereunder.


 


1.2          Purchase Price.  The purchase price of the shares of Common
Stock covered by the Option shall be $18.30 per share without commission or
other charge (which was the closing sale price on the Date of Grant).


 


1.3          Consideration to the Company.  The Option is issued in full satisfaction of
the Company’s obligation to issue stock options to the Optionee pursuant to Section 3.4(d) of
the Employment Agreement or otherwise. 
In the event of any conflict between the terms of this Agreement and the
Employment Agreement, this Agreement shall control.


 


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ARTICLE II


 


PERIOD OF EXERCISABILITY


 


2.1          Commencement of
Exercisability.


 


(a)           Subject to Sections 2.3 and
4.7, the Option shall vest and become exercisable as follows:


 


	
  Vesting Dates

  	
   

  	
  Number of

  Shares Subject

  to Option

  	
   

  	
  Total Stock Options that Become

  Exercisable Upon Stated Vesting Date

  	
   

  	
  Option

  Exercise

  Price

  	
   

  	
  Option

  Expiration

  Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  January 31, 2012

  	
   

  	
  60,000

  	
   

  	
  60,000

  	
   

  	
  $

  	
  18.30

  	
   

  	
  8/26/2016

  	
   

  
	
  January 31, 2013

  	
   

  	
  60,000

  	
   

  	
  120,000

  	
   

  	
  $

  	
  18.30

  	
   

  	
  8/26/2016

  	
   

  
	
  January 31, 2014

  	
   

  	
  60,000

  	
   

  	
  180,000

  	
   

  	
  $

  	
  18.30

  	
   

  	
  8/26/2016

  	
   

  
	
  January 31, 2015

  	
   

  	
  60,000

  	
   

  	
  240,000

  	
   

  	
  $

  	
  18.30

  	
   

  	
  8/26/2016

  	
   

  
	
  January 31, 2016

  	
   

  	
  60,000

  	
   

  	
  300,000

  	
   

  	
  $

  	
  18.30

  	
   

  	
  8/26/2016

  	
   

  
	
  Total

  	
   

  	
  300,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


(b)           No portion of the Option
which has not become vested at such time that the Optionee no longer serves as
an employee, consultant or member of the Company’s Board of Directors (the “Service
Termination Date”) shall thereafter become exercisable.


 


(c)           Notwithstanding the
foregoing, an additional twenty percent (20%) of the Option shall become fully
exercisable in the event that Company undergoes a Change in Control prior to
the Service Termination Date.  “Change in
Control” shall mean a change in ownership or control of the Company effected
through a merger, consolidation or acquisition by any person or related group
of persons (other than an acquisition by the Company or by a person or persons
that directly or indirectly controls, is controlled by, or is under common
control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3
of the Securities Exchange Act of 1934, as amended) of securities possessing
more than fifty percent of the total combined voting power of the outstanding
securities of the Company.


 


(d)           Notwithstanding the
foregoing, in the event that the Optionee does not comply with his obligations
under Section 3.4(a)(ii) in the Employment Agreement and complete the
acquisition of the Subsequent Shares (as defined in the Employment Agreement)
on or before January 31, 2011, then 150,000 of the total 300,000 shares
subject to this Agreement shall be forfeited on February 1, 2011, and the
vesting schedule shall change such that the new total 150,000 shares shall vest
in five (5) equal annual installments of 30,000 each beginning on January 31,
2012.  The forfeited shares shall not be
exercisable by the Optionee.


 


2.2          Duration of Exercisability.  The installments provided for in
Section 2.1(a) are cumulative. 
Each such installment which becomes exercisable pursuant to
Section 2.1 shall remain exercisable until it becomes unexercisable under
Section 2.3.


 


2.3          Expiration of Option.  The Option may not be exercised to any extent
by anyone after the expiration of six (6) years from the Date of Grant.


 


ARTICLE III


 


EXERCISE OF OPTION


 


3.1          Person Eligible to Exercise.  During the lifetime of the Optionee, only the
Optionee may exercise the Option or any portion thereof.  After the death of the Optionee, any
exercisable portion of the Option may, prior to the time when the Option
becomes unexercisable under Section 2.3, be exercised by the Optionee’s
personal representative or by any person empowered to do so under the deceased
Optionee’s will or under the then applicable laws of descent and distribution.


 


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3.2          Partial Exercise.  Any exercisable portion of the Option or the
entire Option, if then wholly exercisable, may be exercised in whole or in part
at any time prior to the time when the Option or portion thereof becomes
unexercisable under Section 2.3; provided, however, that
each partial exercise shall be for whole shares only.


 


3.3          Manner of Exercise.  The Option, or any exercisable portion
thereof, may be exercised solely by delivery to the Secretary or the Secretary’s
office of all of the following prior to the time when the Option or such
portion thereof becomes unexercisable under Section 2.3:


 


(a)           A written notice complying
with the applicable rules established by the Committee stating that the
Option, or a portion thereof, is exercised. 
The notice shall be signed by the Optionee or other person then entitled
to exercise the Option or such portion of the Option;


 


(b)           Full cash payment to the
Secretary of the Company for the shares with respect to which the Option, or
portion thereof, is exercised.  However,
the Committee may in its sole and absolute discretion (i) allow a delay in
payment up to thirty (30) days from the date the Option, or portion thereof, is
exercised; (ii) allow payment, in whole or in part, through the delivery
of shares of Common Stock which have been owned by the Optionee for at least
six months, duly endorsed for transfer to the Company with a Fair Market Value
(as defined below) on the date of delivery equal to the aggregate exercise
price of the Option or exercised portion thereof; (iii) allow payment, in
whole or in part, through the surrender of shares of Common Stock then issuable
upon exercise of the Option having a Fair Market Value on the date of Option
exercise equal to the aggregate exercise price of the Option or exercised
portion thereof; (iv) allow payment, in whole or in part, through the
delivery of a notice that the Optionee has placed a market sell order with a
broker with respect to shares of Common Stock then issuable upon exercise of
the Option, and that the broker has been directed to pay a sufficient portion
of the net proceeds of the sale to the Company in satisfaction of the Option
exercise price, provided that payment of such proceeds is then made to the
Company upon settlement of such sale; or (v) allow payment through any
combination of the consideration provided in the foregoing subparagraphs (ii), (iii) and
(iv);


 


(c)           Such representations and
documents as the Committee, in its absolute discretion, deems necessary or
advisable to effect compliance with all applicable provisions of the Securities
Act of 1933, as amended (the “Securities Act”) and any other federal or state
securities laws or regulations.  The
Committee may, in its absolute discretion, also take whatever additional
actions it deems appropriate to effect such compliance including, without
limitation, placing legends on share certificates and issuing stop-transfer
notices to agents and registrars; and


 


(d)           In the event the Option or
portion thereof shall be exercised pursuant to Section 3.1 by any person
or persons other than the Optionee, appropriate proof of the right of such
person or persons to exercise the Option.


 


(e)              “Fair Market Value” shall mean, as of any date, the
value of the Common Stock determined as follows:


 


(i)        If the
Common Stock is listed on any established stock exchange or traded on the
Nasdaq Global Select Market, Nasdaq Global Market or the Nasdaq Capital Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination; or


 


(ii)        In
the absence of such markets for the Common Stock, the Fair Market Value shall
be determined in good faith by the Board.


 


3.4          Conditions to Issuance of
Stock Certificates.  The shares
of Common Stock deliverable upon the exercise of the Option, or any portion
thereof, may be either previously authorized but unissued shares or issued
shares which have then been reacquired by the Company.  Such shares shall be fully paid and
nonassessable.  The Company shall not be
required to issue or deliver any certificate or certificates for shares of
Common Stock purchased upon the exercise of the Option or portion thereof prior
to fulfillment of all of the following conditions:


 


(a)           The admission of such shares
to listing on all stock exchanges on which such Common Stock is then listed;
and


 


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(b)           The completion of any
registration or other qualification of such shares under any state or federal
law or under rulings or regulations of the Securities and Exchange Commission
or of any other governmental regulatory body, which the Committee shall, in its
absolute discretion, deem necessary or advisable; and


 


(c)           The obtaining of any
approval or other clearance from any state or federal governmental agency which
the Committee shall, in its absolute discretion, determine to be necessary or
advisable; and


 


(d)           The receipt by the Company
of full payment for such shares, including payment of all amounts which, under
federal, state or local tax law, the Company (or other employer corporation) is
required to withhold upon exercise of the Option; and


 


(e)           The lapse of such reasonable
period of time following the exercise of the Option as the Committee may from
time to time establish for reasons of administrative convenience.


 


3.5          Rights as Stockholder.  The holder of the Option shall not be, nor
have any of the rights or privileges of, a stockholder of the Company in
respect of any shares purchasable upon the exercise of any part of the Option
unless and until certificates representing such shares shall have been issued
by the Company to such holder.


 


ARTICLE IV


 


OTHER PROVISIONS


 


4.1          Administration.  The Committee shall have the power to
interpret this Agreement and to adopt such rules for the administration,
interpretation and application of this Agreement as are consistent therewith
and to interpret, amend or revoke any such rules.  All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Optionee, the Company and all other interested persons.  No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect this Agreement or the Option.  In its absolute discretion, the Board may at
any time and from time to time exercise any and all rights and duties of the
Committee under this Agreement, except with respect to matters which under Rule 16b-3
or Section 162(m) of the Code, or any regulations or rules issued
thereunder, are required to be determined in the sole discretion of the
Committee.


 


4.2          Option Not Transferable.


 


(a)           Neither the Option nor any
interest or right therein or part thereof shall be sold, pledged, assigned or
transferred in any manner other than by will or the laws of descent and
distribution, unless and until the Option has been exercised, or the shares
underlying such Option have been issued, and all restrictions applicable to
such shares have lapsed.  Neither the
Option nor any interest or right therein or part thereof shall be liable for
the debts, contracts or engagements of the Optionee or his or her successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect, except to the extent that such disposition is permitted
by the preceding sentence.


 


(b)           During the lifetime of the
Optionee, only the Optionee may exercise the Option (or any portion
thereof).  After the death of the
Optionee, any exercisable portion of an Option may, prior to the time when such
portion becomes unexercisable under the Option Agreement, be exercised by the
Optionee’s personal representative or by any person empowered to do so under
the deceased Optionee’s will or under the then applicable laws of descent and
distribution.


 


4.3          Shares to Be Reserved.  The Company shall at all times during the
term of the Option reserve and keep available such number of shares of Common
Stock as will be sufficient to satisfy the requirements of this Agreement.


 


4.4          Notices.  Any notice to be given under the terms of
this Agreement to the Company shall be addressed to the Company in care of the
Secretary, and any notice to be given to the Optionee shall be addressed to the
Optionee at the address given beneath the Optionee’s signature hereto.  By a notice given pursuant to this
Section 4.4, either party may hereafter designate a different address for
notices to be given to that party.  Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee’s personal representative if such
representative has previously informed the Company of such representative’s
status and address by written notice under this Section 4.4.  Any
notice shall be deemed duly given when enclosed in a properly sealed envelope
or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal
Service.


 


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4.5          Titles.  Titles are provided herein for convenience
only and are not to serve as a basis for interpretation or construction of this
Agreement.


 


4.6          Construction.  This Agreement shall be administered,
interpreted and enforced under the laws of the State of California without
regard to conflicts of laws thereof.


 


4.7          Conformity to Securities
Laws.  The Optionee acknowledges that
the Option is intended to conform to the extent necessary with all provisions
of the Securities Act and the Securities Exchange Act of 1934, as amended and
any and all regulations and rules promulgated by the Securities and
Exchange Commission thereunder, and state securities laws and regulations.  Notwithstanding anything herein to the
contrary,  the Option is granted and may
be exercised, only in such a manner as to conform to such laws, rules and
regulations.  To the extent permitted by
applicable law, this Agreement shall be deemed amended to the extent necessary
to conform to such laws, rules and regulations.


 


4.8          Amendment.  Except as otherwise set forth herein
regarding the Committee’s authority regarding the terms of the Option, this
Agreement may only be amended by a written agreement executed by the Optionee
and the Company and subject to the prior approval of any such amendment by the
Committee.


 


4.9          Taxes.  The Optionee may incur tax liability as a
result of the Optionee’s exercise of, or subsequently disposition of the Common
Stock underlying, the Option. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE
EXERCISING THE OPTION OR DISPOSING OF THE COMON STOCK UNDERLYING THE OPTION.


 


4.10        Adjustments Upon Changes in
Capitalization.  Subject to
any required action by the stockholders of the Company, the number of shares of
Common Stock covered by the Option, the exercise price of the Option, as well
as any other terms that the Committee determines require adjustment shall be
proportionately adjusted for (i) any increase or decrease in the number of
issued Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or similar
transaction affecting the Common Stock, (ii) any other increase or
decrease in the number of issued Common Stock effected without receipt of
consideration by the Company, or (iii)  any other transaction with respect
to Common Stock including a corporate merger, consolidation, acquisition of
property or stock, separation (including a spin-off or other distribution of
stock or property), reorganization, liquidation (whether partial or complete)
or any similar transaction; provided, however that conversion of any
convertible securities of the Company shall not be deemed to have been “effected
without receipt of consideration.”  In the event of any distribution of cash or
other assets to stockholders other than a normal cash dividend, the Committee
shall also make such adjustments as provided in this Section 4.10 or
substitute, exchange or grant an award to effect such adjustments (collectively
“Adjustments”).  Any such Adjustments to
the Option will be effected in a manner that precludes the enlargement of
rights and benefits under the Option.  In
connection with the foregoing adjustments, the Committee may, in its
discretion, prohibit the exercise of the Option or other issuance of Common
Stock, cash or other consideration pursuant to the Option during certain
periods of time. Except as the Committee determines, no issuance by the Company
of shares of any class, or securities convertible into shares of any class,
shall affect, and no adjustment by reason hereof shall be made with respect to,
the number or price of shares of Common Stock subject to the Option.


 


4.11        Limitations
Applicable to Section 16 Persons.  
Notwithstanding any other provision of this Agreement, the Option shall be
subject to any additional limitations set forth in any applicable exemptive
rule under Section 16 of the Exchange Act (including any amendment to
Rule 16b-3 of the Exchange Act) that are requirements for the application
of such exemptive rule. To the extent permitted by applicable law, this Agreement
shall be deemed amended to the extent necessary to conform to such applicable
exemptive rule.


 


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4.12        Section 409A.  
This Agreement and the Option shall be interpreted in accordance with
Section 409A of the Code and Department of Treasury regulations and other
interpretive guidance issued thereunder, including without limitation any such
regulations or other guidance that may be issued or amended after the Date of
Grant. Notwithstanding any provision of this Agreement to the contrary, in the
event that following the Date of Grant the Committee determines that the Option
may be subject to Section 409A of the Code and related Department of
Treasury guidance (including such Department of Treasury guidance as may be
issued after the Date of Grant), the Committee may adopt such amendments to
this Agreement or adopt other policies and procedures (including amendments,
policies and procedures with retroactive effect), or take any other actions,
that the Committee determines are necessary or appropriate to (1) exempt
the Option from Section 409A of the Code and/or preserve the intended tax
treatment of the benefits provided with respect to the Option, or
(2) comply with the requirements of Section 409A of the Code and
related Department of Treasury guidance.


 


4.13        Further Assurances.  The Optionee
shall from time to time and at all times hereafter make, do, execute, or cause
or procure to be made, done and executed such further acts, deeds, conveyances,
consents and assurances without further consideration, which may reasonably be
requested by the Committee in its discretion to effect the intent of this
Agreement.


 


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IN
WITNESS WHEREOF, this Agreement has been executed and delivered by the parties
hereto.


 


 


	
   

  	
   

  	
  CHEROKEE INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Russell J. Riopelle

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Russell
  J. Riopelle

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  HENRY STUPP

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Henry Stupp

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Henry Stupp

  	
   

  	
   

  



 

















 


FORM OF EXERCISE NOTICE


 


Cherokee Inc.


6835 Valjean Avenue


Van Nuys, California 91406


 


Attention: 
Corporate Secretary


 


Re:          Exercise of Stock Option


 


Ladies and Gentlemen:


 


1.             Exercise of
Option.  The
undersigned Optionee,
                                              ,
was granted an option (the “Option”) to purchase shares of the Common Stock,
par value $0.02 per share (“Common Stock”), of Cherokee Inc., a Delaware
corporation (the “Company”), effective as of
                              ,
pursuant to the Stock Option Agreement, dated
                            
(the “Option Agreement”).  The
undersigned hereby elects to exercise the Option as follows:


 


The undersigned hereby elects to exercise the Option as
to
                      
shares of the Common Stock, in accordance with Section 2.1 of the Option
Agreement (the “Shares”).


 


2.             Payment.  The undersigned has enclosed
herewith
                    
(representing full payment for such Shares in accordance with Section 3.3
of the Option Agreement).  The undersigned
authorizes payroll withholding and otherwise will make adequate provision for
the tax withholding obligations of the Company, if any, with respect to such
exercise.


 


3.             Binding
Effect.  The undersigned
agrees that the Shares are being acquired in accordance with and subject to the
terms, provisions and conditions of the Option Agreement set forth therein, to
all of which the undersigned hereby expressly assent.  This Agreement shall inure to the benefit of
and be binding upon the heirs, executors, administrators, successors and
assigns of the undersigned.


 


The undersigned understands that he is purchasing the
Shares pursuant to the terms of the Option Agreement, a copy of which the
undersigned has received and carefully read and understands.


 


 






 


 


Receipt of the above is hereby acknowledged


 


CHEROKEE INC.,


a Delaware corporation


 


 


	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  



 


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