8. Capitalization

Common Stock

During the second quarter of Fiscal 2012, the Company purchased and retired approximately 24,000 shares of common stock at an average price of $16.47. During the third quarter of Fiscal 2012, the Company purchased and retired approximately 108,000 shares of common stock at an average price of $13.85.

Preferred Stock

The Company is authorized to issue up to 1,000,000 shares of preferred stock. The Board of Directors can determine the rights, preferences, privileges and restrictions on the preferred stock and the class and voting rights. As of February 1, 2014 and February 2, 2013, no shares of preferred stock were outstanding.

Dividends

Cherokee has made a quarterly dividend payment to stockholders during each completed quarter of Fiscal 2014, Fiscal 2013 and Fiscal 2012. On January 29, 2013, the Board of Directors approved a dividend of $0.10 per share, or $840, which was paid on March 15, 2013. On April 17, 2013, the Company's Board of Directors declared a dividend of $840, or $0.10 per share, which was paid on June 15, 2013. On August 8, 2013, the Company's Board of Directors declared a dividend of $840, or $0.10 per share, which was paid on September 16, 2013. On November 1, 2013, the Company's Board of Directors declared a dividend of $841, or $0.10 per share, which was paid on December 16, 2013. In the future, from time to time, the Board of Directors may declare additional dividends depending upon Cherokee's financial condition, results of operations, cash flow, capital requirements and other factors deemed relevant by Cherokee's Board of Directors.

Stock-Based Compensation

Effective July 16, 2013, the Company's stockholders approved the 2013 Stock Incentive Award Plan, or the 2013 Plan. The 2013 Plan serves as the successor to the 2006 Incentive Award Plan, or the 2006 Plan (which includes the 2003 Incentive Award Plan as amended by the adoption of the 2006 Incentive Award Plan). The 2013 plan authorized to be issued 700,000 additional shares of Common Stock, and (ii) 77,149 shares of Common Stock previously reserved but unissued under the 2006 Plan. No future grants will be awarded under the 2006 Plan, but outstanding awards granted under the 2006 Plan continue to be governed by its terms. Any such shares of Common Stock that are subject to outstanding awards under the 2006 Plan which are forfeited, terminate or expire unexercised and would otherwise have been returned to the share reserve under the 2006 Plan will be available for issuance as Common Stock under the 2013 Plan. The 2013 Plan provides for the issuance of equity-based awards to officers, other employees, and directors. Stock options issued to employees are granted at the market price on the date of grant, generally vest over a three-year period, and generally expire seven to ten years from the date of grant. The Company issues new shares of common stock upon exercise of stock options. The Company has also granted non-plan options to certain executives as a material inducement for employment.

Following the approval by Cherokee's stockholders, on June 4, 2010, the Company issued to Robert Margolis, the former Executive Chairman, a non-qualified stock option to purchase 100,000 shares of Common Stock (the "Margolis Option") at an exercise price of $18.49, which was the closing price of the Company's Common Stock on June 4, 2010. The Margolis Option was not issued pursuant to any of Cherokee's existing equity incentive plans. Pursuant to its original terms, the Margolis Option was to vest contingent on Mr. Margolis' continued service as a member of the Board of Directors in two equal installments of 50,000, on January 31, 2011 and January 31, 2012; however, pursuant to the Company's separation with Mr. Margolis, the vesting applicable to the Margolis Option was accelerated in full. The Margolis Option is exercisable until June 4, 2015.

The Company accounts for stock options under authoritative guidance, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors for employee stock options based on estimated fair values.

The Company estimates the fair value of stock-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the consolidated statements of income. The compensation expense recognized for all stock-based awards is net of estimated forfeitures over the award's service period.

Stock-based compensation expense recognized in selling, general and administrative expenses for Fiscal 2014 was approximately $1,100 for Fiscal 2013 was approximately $1,000, and for Fiscal 2012 was approximately $600.

The estimated fair value of options granted during Fiscal 2014, Fiscal 2013 and Fiscal 2012 as of each grant date was estimated using the Black-Scholes option-pricing model with the following assumptions:

	Fiscal 2014	Fiscal 2013	Fiscal 2012

Expected Dividend Yield	3.00%	6.45%	4.65% to 6.67%
Expected Volatility	37.32 to 58.13	51.63 to 53.33	49.28 to 51.95
Risk-Free Interest Rate	0.75% to 1.52%	0.57% to 1.01%	0.74% to 1.1%
Expected Life (in years)	4.71 to 4.75	4.0 to 4.5	4.5 to 5.0
Estimated Forfeiture Rate	0% to 10%	10%	30%

The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar options, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. Expected stock price volatility is based on the historical volatility of the Company's stock price. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant with an equivalent remaining term. The dividend yield is based on the past dividends paid and the current dividend yield at the time of grant.

A summary of activity for the Company's stock options as of and for Fiscal 2014, Fiscal 2013 and Fiscal 2012 is as follows:

			Weighted Average Price

Outstanding, at January 29, 2011	949,444		$	18.76
Granted	326,000		$	16.57
Exercised	(10,000	)	$	16.08
Canceled/forfeited	(291,611	)	$	19.23


Outstanding, at January 28, 2012	973,833		$	17.92
Granted	293,000		$	12.50
Exercised	(5,500	)	$	13.06
Canceled/forfeited	(186,333	)	$	18.44


Outstanding, at February 2, 2013	1,075,000		$	16.37	4.49	425
Granted	168,500		$	12.92
Exercised	(3,332	)	$	10.92
Canceled/forfeited	(83,334	)	$	14.57


Outstanding, at February 1, 2014	1,156,834		$	16.02	3.85	436




Vested and Exercisable at February 1, 2014	714,657		$	16.90	3.15	152

The weighted average grant date fair value of options granted under the plans for Fiscal 2014, Fiscal 2013 and Fiscal 2012 was $4.09, $3.23, and $6.89, respectively. The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company's closing stock price on February 1, 2014 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on February 1, 2014 (the last trading day). This amount changes based on the fair market value of the Company's common stock. The total intrinsic value of options exercised for Fiscal 2014, Fiscal 2013 and Fiscal 2012 was $6, $8 and $16, respectively.

As of February 1, 2014, total unrecognized stock-based compensation expense related to non-vested stock options was approximately $1,300, which is expected to be recognized over a weighted average period of approximately 2.00 years. The total fair value of all options which vested during Fiscal 2014, Fiscal 2013 and Fiscal 2012 was approximately $800, $1,100, and $500, respectively.

Restricted Stock and Restricted Stock Units

On April 15, 2013 and on July 16, 2013, the Compensation Committee of the Company's Board of Directors granted certain performance-based equity awards to executives under the Company's 2006 Stock Plan.

The performance metric applicable to such awards is compound stock price growth, using the closing price of the Company's Common Stock on February 1, 2013, or $13.95, as the benchmark. The target growth rate is 10% annually, which results in an average share price target of (i) $15.35 for Fiscal 2014, (ii) $16.88 for Fiscal 2015 and (iii) $18.57 for the Company's fiscal year ending in 2016. The average share price will be calculated as the average of all market closing prices during the January preceding fiscal year end. If a target is met at the end of a fiscal year, one third of the shares subject to the award will vest. If the stock price target is not met, the relevant portion of the shares subject to the award will not vest but will roll over to the following fiscal year. The executive must continue to be employed by the Company through the relevant vesting dates to be eligible for vesting.

Since the vesting of these performance-based equity awards are subject to performance conditions, the fair value of these awards were measured on the date of grant using the Monte Carlo simulation model for each vesting tranche. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the performance conditions stipulated in the award grant and calculates the fair market value for the performance units granted. The Monte Carlo simulation model also uses stock price volatility and other variables to estimate the probability of satisfying the performance conditions and the resulting fair value of the award.

Compensation expense on shares of restricted stock and performance stock, was approximately $200, $10 and $0 for Fiscal 2014, Fiscal 2013 and Fiscal 2012, respectively. The following table summarizes information about restricted stock and performance stock activity during Fiscal 2013 and Fiscal 2014:

			Weighted Average Grant-Date Fair Value

Unvested stock at January 28, 2012	—			—
Granted	9,000		$	13.24
Vested	—			—
Forfeited	(1,500	)	$	13.06


Unvested stock at February 2, 2013	7,500		$	13.27
Granted	79,500		$	4.99
Vested	—			—
Forfeited	—			—


Unvested stock at February 1, 2014	87,000		$	5.70

As of February 1, 2014, total unrecognized stock-based compensation expense related to restricted stock and performance stock was approximately $300, which is expected to be recognized over a weighted average period of approximately 1.88 years.