8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  August 26, 2010

CHEROKEE INC.

(Exact name of registrant as specified in its charter)

Delaware	1-18640	95-4182437
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification Number)

6835 Valjean

Van Nuys, California 91406

(Address of Principal Executive Offices) (Zip Code)

(818) 908-9868

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 3.02Unregistered Sales of Equity Securities

The Information included in Item 5.02(e) of this Form 8-K is hereby incorporated by reference into this Item 3.02.

Item 5.02Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

(b)On August 26, 2010, concurrently with the appointment of Mr. Henry Stupp as Cherokee’s Chief Executive Officer, Robert Margolis stepped down as Cherokee’s Chief Executive Officer and was appointed as Cherokee’s Executive Chairman, effective immediately.  Mr. Margolis’ services to Cherokee as its Executive Chairman are governed pursuant to a management agreement, as amended (the “Management Agreement”).  For further information regarding the Management Agreement, please see Cherokee’s Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on April 27, 2010, which summarizes the terms and conditions of the Management Agreement, including its amendment approved by our stockholders on June 4, 2010, and which is incorporated herein by reference.

(c)Effective as of the same date, Mr. Henry Stupp, age 47, was appointed as our Chief Executive Officer.  As Cherokee’s Chief Executive Officer, Mr. Stupp will be Cherokee’s principal executive officer.  Prior to joining Cherokee, Mr. Stupp was a co-founder of Montreal-based Novel Teez Designs, later known as NTD Apparel, a leading licensee of entertainment, character, sport and branded apparel, and a supplier to all major North American retailers, having most recently served as President of NTD Apparel USA LLC since 2005. Having relocated to southern California in 1995, Mr. Stupp successfully identified, negotiated, and introduced over 200 well-known licenses and brands to a broad retail audience. In addition, Mr. Stupp served a two-year term as an officer of the International Licensing Industry Merchandiser’s Association.  In connection with such appointment, on August 26, 2010, Cherokee entered into an Employment Agreement with Mr. Stupp (the “Employment Agreement”), which is summarized under subsection (e) of this Item 5.02 below.

(d)Effective as of the same date, Mr. Stupp was appointed to serve as a member of Cherokee’s Board of Directors (the “Board”).   The Board believes that Mr. Stupp’s experience and background make him a qualified and valuable member of the Board. In particular, the Board believes Mr. Stupp’s prior experience as a manufacturer, licensee, strategic marketer and supplier to all classes of retail makes him well qualified to serve on the Board.  In addition, the Board believes the knowledge of our business and operations that Mr. Stupp will acquire as a result of his service as our Chief Executive Officer will further enable him to make a meaningful contribution to the Board.

(e)In connection with such appointment, on August 26, 2010, Cherokee entered the Employment Agreement with Mr. Stupp.  The Employment Agreement was approved by the Board as well as the Compensation Committee of the Board (the “Committee”).  Pursuant to the terms of the Employment Agreement, Mr. Stupp is to receive a base salary equal to $350,000 per year.  In addition, beginning for Cherokee’s fiscal year ending January 31, 2012, and for each subsequent fiscal year during the term of the Employment Agreement, Mr. Stupp shall be entitled to receive a performance bonus (the “Performance Bonus”) equal to five percent of Cherokee’s pre-tax income during such fiscal year in excess of a threshold amount of $20,000,000, subject to a maximum of $650,000 per fiscal year.  Mr. Stupp’s services as our Chief Executive Officer are at will.  The Employment Agreement expires as of January 31, 2014, unless earlier terminated by Cherokee or by Mr. Stupp or extended by mutual agreement. Pursuant to the Employment Agreement, Cherokee has agreed to certain indemnification obligations to Mr. Stupp related to his service to Cherokee in his capacity as an officer or director of Cherokee.

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Pursuant to the Employment Agreement, in the event that Mr. Stupp’s employment is terminated by Cherokee without cause during the first twelve months of his service as our Chief Executive Officer, Mr. Stupp will be paid an amount equal to $175,000. The Employment Agreement also provides that Mr. Stupp will be paid an amount equal to $300,000 in the event that Cherokee terminates Mr. Stupp’s employment without cause within three months prior to or twelve months following a change in control of Cherokee which occurs on or before August 26, 2011.    Pursuant to the Employment Agreement, if Mr. Stupp’s employment is terminated by Cherokee without cause at any time after the first twelve months of his service as our Chief Executive Officer, then he shall be paid an amount equal to twelve months of his then-current base salary, which currently equals $350,000.

Pursuant to the Employment Agreement, on August 26, 2010, Mr. Stupp purchased 81,967 shares of Cherokee’s common stock (the “Initial Shares”) at a per share price of $18.30 (which was equal to the closing price of Cherokee’s common stock on such date), for aggregate proceeds of $1,500,000.  Pursuant to the Employment Agreement, Mr. Stupp agreed to purchase, and Cherokee agreed to sell, on or before January 31, 2011, that number of shares of Cherokee’s common stock equal to $1,000,000, divided by the closing sale price of Cherokee’s common stock on the date of such purchase and sale (the “Subsequent Shares” and, together with the Initial Shares, the “Shares”). Mr. Stupp has agreed to certain “lock up” restrictions regarding his ability to resell or otherwise dispose of any of the Shares as set forth in the Employment Agreement.  The sale of the Initial Shares was made pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, including pursuant to Rule 506 thereunder (as Mr. Stupp is an “accredited investor” under Rule 506 and the sale was made without any form of general solicitation and with full access to any information requested by Mr. Stupp regarding Cherokee or its common stock).  Pursuant to the Employment Agreement, Cherokee has agreed to file with the SEC a registration statement, or registration statements if necessary, on an appropriate form(s) to effect the registration for resale of both the Shares and the shares of Common Stock that may be acquired upon exercise of the Option (as defined below).

The foregoing description of the Employment Agreement is not complete and is qualified in its entirety by the Employment Agreement, which attached hereto as Exhibit 10.1 and is incorporated herein by reference.

In addition, in connection with appointment of Mr. Stupp as our Chief Executive Officer, Cherokee has granted to Mr. Stupp an option to purchase up to 300,000 shares (the “Option”) of Cherokee’s common stock as an inducement grant outside of Cherokee’s 2006 Incentive Award Plan (the “2006 Plan”).  This grant of stock options was entered into as an inducement material for Mr. Stupp to enter into employment with Cherokee.   While the grant of the Option was made outside of the 2006 Plan, the grant is consistent with applicable terms of the 2006 Plan.   The Option has an exercise price of $18.30 per share, which was the closing price of Cherokee’s common stock on the Nasdaq Global Select Market on the date of grant.  The Option vests in five equal annual installments beginning on January 31, 2012, and vesting in four additional increments on each yearly anniversary thereafter.   In addition, in the event of a change in control of Cherokee, an additional twenty percent of the shares subject to the Option shall vest.  The Option has a term of six years and will be forfeited if not exercised before the expiration of the term.  In addition, in the event that Mr. Stupp does not comply with his obligation under the Employment Agreement to purchase the Subsequent Shares, then 150,000 of the shares subject to the Option will be immediately forfeited and not exercisable, and the vesting schedule will be proportionally adjusted.  If Mr. Stupp’s service to Cherokee is terminated for any reason, the Option shall cease vesting upon such termination.

The foregoing description of the Option is not complete and is qualified in its entirety by the Option, which attached hereto as Exhibit 10.2 and is incorporated herein by reference.

In addition, on August 26, 2010, the Committee approved a stock option grant for one of Cherokee’s named executive officers as follows:

(i)Howard Siegel, Cherokee’s Chief Operating Officer, was awarded a grant of an option to purchase 50,000 shares of Cherokee’s common stock under the 2006 Plan with an exercise price of $18.30, which was the closing price of Cherokee’s common stock on the Nasdaq Global Select Market on the date of grant.  These stock options expire on 8/26/2017, and vest in equal annual installments over three years.

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Item 8.01Other Events.

Cherokee issued a press release, dated August 30, 2010, relating to the appointment of Henry Stupp as Cherokee’s Chief Executive Officer.  The press release is attached to this Form 8-K as Exhibit 99.1.

Item 9.01Financial Statements and Exhibits.

(d)Exhibits.

Exhibit No.	Description
10.1	Employment Agreement, dated as of August 26, 2010, by and between Cherokee and Henry Stupp*
10.2	Stock Option Agreement, dated as of August 26, 2010, by and between Cherokee and Henry Stupp*
99.1	Press Release of Cherokee Inc., dated as of August 30, 2010*

*Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	CHEROKEE INC.
Dated: September 1, 2010	By:	/s/ Russell J. Riopelle
		Russell J. Riopelle
		Chief Financial Officer

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EX-10.1

EXHIBIT 10.1

EMPLOYMENT AGREEMENT BETWEEN

CHEROKEE INC. AND HENRY STUPP

This Employment Agreement (“Agreement”) is entered into as of the 26th day of August, 2010, by and between Henry Stupp (“Stupp”) and Cherokee Inc., a Delaware corporation (the “Company”).

WHEREAS, the Board of Directors of the Company believes it to be in the Company’s best interest to employ Henry Stupp, pursuant to the terms of this Agreement, and Stupp desires to accept such employment;

WHEREAS, subject to the terms and conditions set forth herein, the Company and Stupp wish to set forth their understanding regarding the mutual rights, obligations and responsibilities of Stupp and the Company in connection with Stupp’s senior executive position with the Company; and

NOW, THEREFORE, in consideration of the foregoing premises, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Stupp agree as follows:

1.Term.  Except as provided in Section 9 below, the term of this Agreement shall commence as of the date hereof and shall terminate on the earlier of (i) termination of Stupp’s employment in accordance with Section 9 and (ii) January 31, 2014 (the “Term”), which may be extended by mutual agreement and as determined by the Company’s Board of Directors.

2.Services.

2.1General Responsibilities.  Subject to the supervision of the Board of Directors of the Company, Stupp shall serve as the Company’s Chief Executive Officer (“CEO”) during the Term.

2.2Management Titles.  During the Term, the Board of Directors of the Company shall appoint Stupp as CEO with all the powers and authorities as are customarily vested in the chief executive officer of a publicly-traded company such as the Company.  Such duties shall include, but not be limited to, the development and submission to the Board for approval of an annual fiscal year operating budget, which shall be submitted to the Board no later than November 30th of the prior fiscal year, and considered for approval by the Board no later than January 15th of the prior fiscal year.

3.Compensation.  As compensation for his services rendered under this Agreement, the Company shall compensate Stupp as follows:

3.1Base Compensation.  As his base compensation for services rendered hereunder, Stupp shall receive a base salary of $350,000 per annum.  Stupp shall be paid the base salary consistent with normal payroll procedures, as other senior officers are paid.

3.2Annual Performance Bonus.  Beginning for the Company’s fiscal year ended January 31, 2012 (“Fiscal 2012”), and for each fiscal year during the Term, Stupp shall be entitled to receive a performance bonus (the “Performance Bonus”) equal to five percent (5%) of the Pre-Tax Income during such fiscal year in excess of a threshold amount of twenty million dollars ($20,000,000), subject to a maximum of $650,000 per fiscal year.  Pre-Tax Income shall be determined from the audited financial statements of the Company for each such subject fiscal year.

3.3Payment of Performance Bonuses.

(a)All performance bonuses payable to Stupp pursuant to Section 3.2 of this Agreement (collectively, “Performance Bonuses”) shall be paid in full in accordance with the Company’s normal payroll bonus procedures, and shall be paid within 2 ½ months following the subject fiscal year end, pursuant to IRS guidelines regulating the deductibility of such payments. Anything set forth herein to the contrary notwithstanding, no Performance Bonuses will be paid to Stupp hereunder unless and until the Compensation Committee of the Board of Directors of Company has certified in writing that the terms of this Agreement have been satisfied and such Performance Bonuses and other compensation have been earned and are payable in accordance with this Agreement.  The Compensation Committee shall act on such certification within 2 ½ months following the subject fiscal year end.

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(b)For purposes of this Agreement, Pre-Tax Income shall be determined in accordance with U.S. generally accepted accounting principles and shall be reduced by all accrued compensation expenses attributable to any compensation paid or payable to Stupp hereunder, including but not limited to the Performance Bonuses and Base Compensation.

3.4Stupp Equity Investment in the Company, and Concurrent Inducement Grant of Stock Options.

(a)Sale and Issuance of Common Stock.

(i)Subject to the terms and conditions of this Agreement, Stupp agrees to purchase on the date of this Agreement, and the Company agrees to sell and issue to Stupp, a total of 81,967 shares of the Company’s Common Stock (the “Initial Shares”) at a purchase price of $18.30 per share, for a total purchase price of $1,500,000 (the “Initial Purchase Price”), payable by cash, check or wire transfer.  The per share price is equal to the closing sales price of the Company’s Common Stock as reported on the Nasdaq Global Market on the date of this Agreement.  Promptly after receipt of such payment, the Company shall deliver to Stupp a stock certificate representing the Initial Shares.

(ii)Subject to the terms and conditions of this Agreement, Stupp agrees to purchase on or before January 31, 2011, and the Company agrees to sell and issue to Stupp, that number of shares of the Company’s Common Stock (the “Subsequent Shares”, and, together with the Initial Shares, the “Shares”) equal to $1,000,000 (the “Subsequent Purchase Price”) divided by the closing sales price of the Company’s Common Stock as reported on the Nasdaq Global Market on the date of such purchase and sale (the “Subsequent Purchase Date”). The Subsequent Purchase Price is payable by cash, check or wire transfer on the Subsequent Purchase Date.  The per share price of the Subsequent Shares equal to the closing sales price of the Company’s Common Stock as reported on the Nasdaq Global Market on the Subsequent Purchase Date.  Promptly after receipt of the Subsequent Payment, the Company shall deliver to Stupp a stock certificate representing the Subsequent Shares.

(iii)Stupp hereby acknowledges that the Shares are being offered and sold without registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance upon the exemption provided in Regulation D promulgated under the Securities Act and that the availability of such exemption is based in material respects upon the truth of the following representations.  With the foregoing in mind and to induce the Company to accept this subscription, Stupp hereby represents and warrants to the Company as follows:

(1)Stupp has received and reviewed all information that he considers necessary or appropriate for deciding whether to purchase the Shares; Stupp (and/or his professional advisor, if any) has had an opportunity  to ask questions and receive answers from the Company regarding the terms and conditions of the sale of the Shares hereunder and regarding the business, financial condition, properties, operations, prospects and other aspects of the Company and all such questions have been answered to Stupp’s full satisfaction; and Stupp has further had the opportunity to obtain all information (to the extent that the Company possesses or can acquire such information without unreasonable effort or expense) which Stupp deems necessary to evaluate the investment and to verify the accuracy of information otherwise provided to Stupp; Stupp has not relied on any information or representations with respect to the Company or the offering of the Shares, other than as expressly set forth herein.  Stupp understands that no person has been authorized to give any information or to make any representations other than those expressly contained herein; Stupp is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act; Stupp represents that he has consulted with his own tax, investment and legal advisors with respect to the federal, state, local and foreign tax consequences arising from his purchase of the Shares to the extent Stupp has determined it necessary to protect his own interest in connection with a purchase of the Shares in view of Stupp’s prior financial experience and present financial condition, and has relied on his own analysis and investigation and that of Stupp’s advisors in determining whether to invest in the Shares; Stupp recognizes that an investment in the Shares involves a high degree of risk, (ii) no assurance or guarantee has or can be given that an investor in the Company will receive a return of his capital or realize a profit on his investment; Stupp has determined that he can afford to bear the risk of the investment in the Shares, including loss of the entire investment in the Company and he will not experience personal hardship if such a loss occurs; Stupp is purchasing the Shares solely for his own account for investment (not for the account of any other person), and not with a view to, or for, any resale, distribution, fractionalization, or other transfer thereof, and Stupp has no present plans to enter into any contract, undertaking, agreement, or arrangement for any such resale, distribution, fractionalization, or transfer; Stupp acknowledges that neither the Company nor any other person offered to sell the Shares to it by means of any form of general advertising, such as media advertising or seminars; and Stupp understands that the Shares have not been registered or qualified under the Securities Act, and Stupp understands and agrees that all Shares are subject to restrictions on transfer as contained in this Agreement.  Further, certificates representing the Shares shall bear a legend substantially as follows:

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“The shares represented by this certificate have not been registered under the United States Securities Act of 1933, as amended (the ‘Act’), and may not be offered, sold or otherwise transferred, pledged or hypothecated unless and until such shares are (a) registered under the Act or (b) are sold pursuant to a valid exemption from the Act and an opinion of counsel reasonably satisfactory to the Company is obtained to the effect that such registration is not required.  These shares also are subject to transfer restrictions as set forth in an Agreement, dated August 26, 2010.”

(b)Registration Rights.  Within three (3) months following the later of February 1, 2011 or the Subsequent Purchase Date, the Company shall file with the Securities and Exchange Commission a registration statement, or registration statements if necessary, on an appropriate form(s) to effect the registration for resale of both the Shares and the shares of Common Stock that may be acquired upon exercise of the Option (as defined below).  The Company shall use its commercially reasonable efforts to cause such registration statement(s) to become effective and to keep any such registration statement(s) continuously effective under the Securities Act of 1933, as amended (the “Act”), until the earlier of (i) the date when all of the Shares have been sold or (ii) the date when all of the Shares may be sold immediately without registration pursuant to Rule 144 promulgated under the Act.

(c)Lock-Up Agreement.  Stupp hereby agrees that, without the prior written consent of the Company’s Board of Directors, he will not, during the period commencing on the date hereof and ending on January 31, 2014, subject to the terms in this Section 3.4 (c) below, sell or otherwise transfer or dispose of, directly or indirectly, any of the Shares (the “Lock-Up”); provided, however, that from and after January 31, 2012, 33.3% of the Shares shall be released from the Lock-up, and 66.6% of the Shares (inclusive of the 33.3% released on January 31, 2012) shall be released from the Lock-up on January 31, 2013; provided, further, that all of the Shares shall be released from the Lock-Up as follows:  (i) immediately following termination without Cause by the Company if such termination occurs during the first twelve (12) months of the Term; or (ii) three (3) months following Stupp’s voluntary resignation (at any time during the Term); or (iii) three (3) months following termination without Cause by the Company which occurs following the first twelve (12) months of the Term; or (iv) six (6) months following any termination for Cause by the Company.

(d)Equity Compensation.  Also concurrent with the execution of this Agreement, the Compensation Committee of the Board shall approve and document the grant to Stupp of a non-qualified, non-plan option to purchase 300,000 shares of the Company’s common stock (the “Option”) on the date that this Agreement is entered into (the “Date of Grant”).  The documentation shall be consistent with the Company’s standard form of option agreement under its 2006 Equity Incentive Plan except as specifically provided in this Agreement.  The Company and Stupp agree and acknowledge that this option grant is intended to be a material inducement to Stupp to accept employment with the Company, consistent with Nasdaq Rule 5635(c)(4), and the Company and Stupp confirm that Stupp has not previously been an employee, officer or director of the Company which would disqualify the Company from relying on the exception to the stockholder approval requirements contained in such Rule 5635(c)(4).  The exercise price per share will be equal to the closing sale price of one share of common stock on the Date of Grant.  The option shall vest contingent on Stupp’s continued service as an employee, director or consultant of the Company, as documented below.

Vesting schedule:	60,000 vest on 1/31/2012
	60,000 vest on 1/31/2013
	60,000 vest on 1/31/2014
	60,000 vest on 1/31/2015
	60,000 vest on 1/31/2016

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In the event of a Change of Control, in addition to any shares which may already have vested, 60,000 shares shall vest immediately prior to the closing of the Change of Control.

In the event that Stupp does not comply with his obligations under Section 3.4(a)(ii) above and complete the acquisition of the Subsequent Shares on or before January 31, 2011, then 150,000 of the shares subject to the Option shall be forfeited on February 1, and the vesting schedule above shall be deemed amended to replace 60,000 with 30,000.  The forfeited shares shall not be exercisable by Stupp.

The Option shall expire on the 6th anniversary of the Date of Grant (estimated to be 8/30/2016).

For purposes of this Agreement, “Change of 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) of securities possessing more than fifty percent of the total combined voting power of the outstanding securities of the Company.

4.Board Seat and Oversight of the Board of Directors of the Company.

4.1Seat on Cherokee’s Board of Directors.  Stupp shall be appointed to serve as a member of the Company’s Board of Directors and join the Board of Directors effective upon the execution of this Agreement.  Each year during the Term, the Board shall nominate Stupp for election to the Board at the Company’s annual meeting of stockholders.

4.2Board of Director’s Oversight.  Stupp agrees that the Board of Directors shall have approval rights of the Company’s (i) annual operating budget, (ii) business plan, (iii) capital expenditures (in excess of twenty-five thousand dollars ($25,000) per quarter), (iv) purchases of any businesses or material assets (outside of the ordinary course of business), (v) sales of any of the Company’s businesses, division or material assets (other than inventory and outside of the ordinary course of business), and (vi) hires of any employees with base salaries (including any contractually promised bonuses) in excess of one hundred thousand dollars ($100,000) per annum. Stupp shall present to the Board of Directors revised business plans within fifteen (15) calendar days after any requests from the Board of Directors.

5.Other Activities of Stupp; Conflict of Interest.  During the Term of this Agreement, Stupp agrees to devote substantially all of his business time to the business and affairs of the Company and to use his best efforts to perform faithfully and efficiently the responsibilities assigned to him hereunder to the extent necessary to discharge such responsibilities, except for (i) services on corporate, civic or charitable boards or committees not significantly interfering with the performance of such responsibilities; and (ii) periods of vacation and sick leave to which he is entitled.

During the Term of this Agreement (i) Stupp will not accept any other employment, and (ii) Stupp or any entity controlled by Stupp (each a “Controlled Entity”) will not own (directly, indirectly, of record, beneficially or otherwise) or control the voting power of, greater than 5% of the capital stock or other securities of any corporation or any other business entity that is in a Competitive Business (as defined below) with the Company or its subsidiaries (each of (i) and (ii), a “Prohibited Activity”), unless all material facts regarding such Prohibited Activity have been presented to the Board of Directors and the disinterested members of the Board of Directors, by duly adopted written resolution, authorize Stupp or the Controlled Entity to engage in such Prohibited Activity.  For purposes of this Agreement, a Competitive Business is one that engages in the marketing, licensing of brands and/or the manufacturing of branded merchandise.  During the Term, neither Stupp nor any Controlled Entity shall engage or in any manner participate in any Competitive Business.

Notwithstanding the foregoing, Cherokee and the Board of Directors agree and acknowledge (a) that Stupp may fulfill his obligations pursuant to his existing agreement between Strong Harrison, LLC (which is an entity controlled by Stupp) and NTD Apparel Inc., and (b) that Company waives any conflict attached thereto and any entitlement to any proceeds otherwise due to Strong Harrison or Stupp pursuant to such agreement; provided, however, that Stupp shall spend not more than ten percent (10%) of his time on matters related to NTD Apparel and any, and all Cherokee matters and business shall take priority and come first before any matters or business related to NTD Apparel.  Furthermore, Stupp shall indemnify and hold Company and its affiliates, directors, officers, employees and agents harmless from and against any and all liabilities, losses, claims, suits, damages, costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) arising out of or otherwise relating to any claims by NTD Apparel.

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6.Reimbursement of Expenses.  Stupp shall be reimbursed for any and all reasonable business and administrative expenses incurred on the Company’s behalf (including travel, airfare, hotel and other expenses for out-of-town travel), consistent with the Company’s existing business expense reimbursement policy as currently applied to senior executives.  Such reimbursement shall generally occur within thirty (30) calendar days after the Company’s receipt of appropriate documentation detailing such expenses and in accordance with Treas. Regs. Section 1.409A-3(i)(1)(iv); provided, however, that such expenses may be reviewed for their reasonableness and propriety (the “Expense Review”) by the Company’s Chief Operating Officer (or, if the Company has no Chief Operating Officer, its Chief Financial Officer) and/or by the disinterested members of the Board of Directors. The results of any Expense Review shall be final and binding on Stupp.

7.Insurance.  The Company shall and hereby covenants to, at its own expense during the term hereof: (i) maintain directors and officers liability insurance policies covering Stupp, with coverage and amounts as determined by the Board of Directors of the Company; and (ii) provide or reimburse Stupp (but not his dependents) for health and disability insurance in amounts comparable to those afforded to other officers of the Company, if applicable.

8.Indemnification.  To the maximum extent permitted by governing law, the Company shall indemnify and hold Stupp harmless from and against all claims or actions of, or demands, suits or proceedings by any third party, and damages, losses and expenses (including reasonable attorneys’ fees) in connection therewith, arising out of this Agreement and the performance by Stupp of his responsibilities hereunder; provided, however, such indemnity shall not apply to any such claim, action, demand, suit, proceeding, damage, loss or expense of Stupp to the extent he is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) to have resulted primarily from his gross negligence or willful misconduct. Stupp shall give prompt written notice if any claim, charge, action or proceeding (“Indemnity Claim”) shall be asserted or commenced which, if successful, could give rise to a claim for indemnification hereunder.

Upon notice of any such Indemnity Claim the Company shall, at its own expense, resist and dispose of such claim in such manner as it deems appropriate. The Company shall not, except with Stupp’s prior written consent, consent to entry of any judgment or enter into any settlement which requires the payment of money by or imposes any obligations upon Stupp or which does not include as an unconditional term, the release of Stupp by the claimant or plaintiff from any liability in respect to such claim or the defense thereof. The foregoing indemnification obligation shall be in addition to any other liability which the Company may have to Stupp under the Certificate of Incorporation of the Company or its By-Laws. Stupp shall not settle any claim, demand, action, suite or proceeding without the consent of the Company, which consent shall not be unreasonably withheld.

9.Events of Termination.  Stupp’s employment with the Company shall be “at will” at all times.  The Company may terminate Stupp’s employment with the Company at any time, without any advance notice, for any reason or no reason at all, notwithstanding anything to the contrary contained in or arising from any statements, policies or practices of the Company relating to the employment, discipline or termination of its employees.  Similarly, Stupp may terminate his employment with the Company at any time for any reason or no reason at all.  Upon and after such termination, all obligations of the Company under this Agreement shall cease, except as otherwise provided herein. Stupp shall not be entitled to any payments under this Section 9 if Stupp’s employment is terminated for Cause, by Death or by Disability or if Stupp’s employment is terminated by Stupp.  Stupp’s eligibility to receive the payments and benefits provided for in this Section 9 is conditioned on Stupp having first signed a release agreement in the form and substance reasonably satisfactory to the Company within thirty (30) days following his termination of employment. Payments under this Section 9 shall commence on the fortieth (40th) day following this termination of employment, conditioned upon the execution of the release as provided in the preceding sentence and the expiration of any revocation periods provided under the terms of the release or law.  Any amounts to which Stupp is entitled that were otherwise payable during such forty (40) day period following his termination shall be paid on the first business day following the expiration of such forty (40) day period.  For purposes of determining Stupp’s entitlement under this Agreement to any payments as a result of his “termination”, such term shall mean a “separation from service” as that term is defined in Code Section 409A(a)(2)(A)(i) and Treas. Regs. Section 1.409A-1(h), and as amplified by any other official guidance.  Upon termination of Stupp’s employment, Stupp shall be deemed to have resigned from all offices and directorships then held with the Company.  Following any termination of employment, Stupp shall cooperate with the Company in the winding up of pending work on behalf of the Company and the orderly transfer of work to other employees.  Stupp shall also cooperate with the Company in the defense of any action brought by any third party against the Company that relates to Stupp’s employment by the Company.

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9.1Termination Following a Change in Control.  In the event that the Company terminates Stupp’s employment without Cause within 3 months prior to or 12 months following a Change in Control which occurs within 12 months from the date of this Agreement, Stupp will be eligible to receive an amount equal to $300,000, payable in the form of salary continuation over 12 months.  Stupp shall also be entitled to the accelerated vesting of stock options as provided in Section 3.4(b) above upon a Change in Control.

9.2Termination during the first 12 months.  Except as otherwise provided in Section 9.1, if Stupp’s employment is terminated for any reason during the first 12 months of the Term by either the Company or Stupp then all stock options granted hereunder will be cancelled and shall not be exercisable.  In the event that Stupp’s employment is terminated by the Company without Cause during the first 12 months of the Term, Stupp will be eligible to receive an amount equal to $175,000, payable in the form of salary continuation over 6 months.

9.3Termination after the first 12 months by the Company, without Cause.  Except as otherwise provided in Section 9.1, if Stupp’s employment is terminated by the Company without Cause at any time after the first 12 months of the Term, then he shall be paid an amount equal to twelve (12) months of his then-current base salary, payable in the form of salary continuation over 12 months.

9.4Termination by the Company, for Cause.  The Board of Directors may terminate this Agreement at any time for “Cause.” For purposes of this Agreement, “Cause” shall mean: (i) any act knowingly undertaken by Stupp with the intent of causing damage to the Company, its properties, assets or business or its stockholders, officers, directors or employees; (ii) any fraud, misappropriation or embezzlement by Stupp resulting in more than a de minimis personal profit to Stupp, in any case, involving properties, assets or funds of the Company or any of its subsidiaries; (iii) Stupp’s consistent failure to materially perform his normal duties other than any such failure resulting from Stupp’s permanent disability; (iv) conviction of, or pleading nolo contendere to, (A) any crime or offense involving monies or other property of the Company; or (B) any felony offense involving a crime of moral turpitude; or (v) Stupp’s chronic or habitual use or consumption of drugs or alcoholic beverages, in either case, that causes material damage to the Company, its properties, assets or business, provided, that to the extent any circumstances that would otherwise constitute Cause shall be capable of cure, including without limitation subsections (iii) and (v) of this paragraph, Stupp shall be given no less than thirty days written notice by the Company to cure such circumstances prior to any termination of his employment for Cause.

9.5Death or Disability.  This Agreement shall terminate immediately upon Stupp’s death. In addition, upon the failure of Stupp, during the Term, to render services to the Company for a substantially continuous period of six (6) months, because of Stupp’s physical or mental disability during such period, the Company, acting through its Board of Directors or a committee of its Board of Directors to which such authority has been delegated, may terminate Stupp’s employment with the Company. If there should be any dispute between the parties as to Stupp’s physical or mental disability at any time, such question shall be settled by the opinion of an impartial reputable physician agreed upon for the purpose by the parties or their representatives, or failing agreement within ten (10) business days of a written request therefor by either party to the other, then one designated by the then president of the Los Angeles Medical Society. The certificate of such physician as to the matter in dispute shall be final and binding on the parties.

10.Compensation to Stupp in the Event of Early Termination of the Agreement.  In the event of a termination pursuant to Section 9, in addition to amounts set out therein, if any, the Company shall (i) pay Stupp (or his estate) Base Compensation pursuant to Section 3.1 through the date of termination, (ii) reimburse Stupp (or his estate) for all expenses pursuant to Section 6 to the date of termination and (iii) provide ongoing indemnification for Stupp (or his estate) pursuant to Section 8.  Stupp (or his estate) shall be entitled to any unpaid Performance Bonuses earned pursuant to Sections 3.2 or 3.3 during the fiscal year which this Agreement is terminated.  Such unpaid Performance Bonuses will be paid pursuant to (and at the time specified in) Section 3.4 and calculated pursuant to Section 3 using the results of the whole fiscal year during which the Agreement is terminated, but will be pro rated for the number of full months occurring in such fiscal year prior to the date of termination. Stupp shall also be entitled to comparable ongoing insurance coverage pursuant to Section 7 as may be available to other terminated officers, employees or directors of the Company.

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11.No Actions.  Except as specifically contemplated hereby, during the term of this Agreement, the Company and its Board of Directors shall not enter into or authorize any contracts, or take any other actions which would be inconsistent or interfere with, modify or supersede the management responsibilities delegated to Stupp under this Agreement or otherwise impair or interfere with Stupp’s ability to manage the operations of the Company in accordance with the terms hereof.

12.Miscellaneous Terms.

12.1Jurisdiction.  Each of the Company and Stupp acknowledges and agrees that the sole forum for commencing or pursuing any proceeding with respect to disputes arising under or in connection with this Agreement, any provisions hereunder, or any other document or instrument entered into or given or made pursuant to this Agreement is, and each party irrevocably submits itself to the personal jurisdiction of, the Superior Court for the County of Los Angeles. Each party hereto consents and agrees that such courts shall have sole original jurisdiction over any matter arising under or in connection with this Agreement.  This consent to jurisdiction shall be self-operative and no further instrument or action, other than service of process as provided in this Agreement and as permitted by law, shall be necessary to confer jurisdiction upon the parties hereto in such courts.

12.2Service and Venue.  Each of the Company and Stupp expressly covenants and agrees that service of process may be made, and personal jurisdiction over said party obtained, by serving a copy of the Summons and Complaint upon said party in accordance with the applicable laws and rules of the pertinent court having jurisdiction over the case pursuant to Section 12.1.

12.3Notices.  All notices, requests, demands and other communications called for or contemplated hereunder shall be in writing and shall be deemed duly given (i) on the date of delivery if delivered personally, (ii) on the first business day following the date of dispatch if delivered by a nationally recognized next-day courier service, (iii) on the seventh business day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid or (iv) if sent by facsimile transmission, with a copy mailed on the same day in the manner provided in (ii) or (iii) above, when transmitted and receipt is confirmed by telephone. All notices, requests, demands and other communications shall be addressed to the parties at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid:

If to the Company:	Cherokee Inc.
	6835 Valjean Avenue
	Van Nuys, CA 91406
	Attention: Chief Financial Officer
	Fax: (818) 908-9191
If to Stupp:	Mr. Henry Stupp
	17400 Oak Creek Court
	Encino, CA 91316
	Fax: 818-475-1356

12.4Modification; Waiver.  No modification or waiver of any provision of this Agreement or consent to departure therefrom shall be effective unless in writing and approved by the parties hereto. There shall be no waiver of any of the provisions of this Agreement unless in writing signed by the party against which the waiver is sought to be enforced.

12.4A.Delay of Benefits Required by 409A.  Payments under this Agreement to Stupp shall be delayed to the extent necessary to comply with Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986 (the “Code) (relating to payments made to certain “specified employees” of certain publicly-traded companies) and in such event, any such amount to which Stupp would otherwise be entitled during the six (6) month period immediately following his or her separation from service will be paid on the first business day following the expiration of such six (6) month period.

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12.4B  Compliance with Code Section 409A.  This Agreement  is intended to comply with the provisions of Code Section 409A, and the Company reserves the right to amend this Agreement in its discretion in order to make this Agreement comply with Code Section 409A;  provided, however, that the Company makes no representation that the amounts payable to Stupp under this Agreement will comply with Code Section 409A and makes no undertaking to prevent Code Section 409A from applying to the amounts payable under this Agreement or to mitigate its effects on any amounts payable under this Agreement.

12.5Employee Representations.  Stupp hereby represents and warrants to Cherokee that as of the date hereof (a)  there is no current pending, threatened or actual litigation with respect to Stupp or any of his Controlled Entities, and (b) Stupp has never been charged with or convicted of a crime (other than traffic violations).

12.6Governing Law.  This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California applicable to agreements to be entered into and wholly performed within said state without reference to the conflicts of law provisions thereof.

12.7Construction of Agreement.  The language in all parts of this Agreement shall be in all cases construed simply according to its fair meaning and not strictly for or against any of the parties hereto. Headings at the beginning of Sections, Subsections, paragraphs and subparagraphs of this Agreement are solely for convenience of reference and shall not constitute a part of this Agreement for any other purpose. When required by the context, whenever the singular number is used in this Agreement, the same shall include the plural, and the plural shall include the singular, the masculine gender shall include the feminine and neuter genders, and vice versa.

12.8Further Assurances.  After the effective date of this Agreement, each party agrees to execute any and all such further agreements, instruments or documents, and to take any and all such further action as may be necessary or desirable to carry out the provisions hereof and to effectuate the purposes of this Agreement.

12.9Attorneys’ Fees.  In the event any action in law or equity or other proceeding is brought for the enforcement of this Agreement or in connection with an interpretation of the provisions of this Agreement, the Court shall award reasonable attorneys’ fees and other costs reasonably incurred in such action or proceeding to the parties based on its judgment of the relative merits of their respective claims.

12.10Severability.  Should any one or more of the provisions of this Agreement or of any agreement entered into pursuant to this Agreement be determined to be illegal or unenforceable, all other provisions of this Agreement and of each other agreement entered into pursuant to this Agreement, shall be given effect separately from the provision or provisions determined to be illegal or unenforceable and shall not be affected thereby.

12.11Integration: Parties in Interest.  This Agreement contains the entire agreement of the parties with respect to the subject matter thereof and supersedes all prior agreements between the parties, whether written or oral. No party shall be liable or bound to any other party in any manner except as specifically set forth in this Agreement. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, whether so expressed or not. No party hereto shall have the right to assign this Agreement without the prior written consent of the other party hereto.

12.12Counterparts.  This Agreement may be executed in any number of counterparts with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. A facsimile copy of a signed execution page shall constitute due execution of this Agreement and shall binding upon the executing party.

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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the first date hereinabove written.

HENRY STUPP		CHEROKEE INC.
By:	/s/ Henry Stupp	By:	/s/ Robert Margolis
Name:	Henry Stupp	Name:	Robert Margolis
		Title:	Chairman of the Board

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EX-10.2

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

1.1Grant 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.

1.2Purchase 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).

1.3Consideration 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

2.1Commencement 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	OptionExercise Price		OptionExpiration 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.

2.2Duration 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.

2.3Expiration 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

3.1Person 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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3.2Partial 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.

3.3Manner 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.

3.4Conditions 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.

3.5Rights 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

4.1Administration.  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.

4.2Option 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.

4.3Shares 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.

4.4Notices.  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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4.5Titles.  Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

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

4.7Conformity 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.

4.8Amendment.  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.

4.9Taxes.  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.

4.10Adjustments 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.

4.11Limitations 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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4.12Section 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.

4.13Further 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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EX-99.1

EXHIBIT 99.1

Cherokee Inc.	ADDO Communications, Inc.
6835 Valjean Ave.	2120 Colorado Ave. Suite 160
Van Nuys, CA 91406	Santa Monica, CA 90405
(818) 908-9868	(310) 829-5400
Contact: Russell J. Riopelle, Chief Financial Officer	Contact: Andrew Greenebaum

Cherokee Inc. Announces New Chief Executive Officer

VAN NUYS, CA (August 30, 2010) — Robert Margolis, Executive Chairman and founder of Cherokee Inc., (NASDAQ:  CHKE), a leading licensor and global brand management company, today announced that Cherokee has entered into an employment agreement with Henry Stupp to be its Chief Executive Officer and a member of its Board of Directors.  Mr. Margolis stated, “Henry’s agreement is perfectly aligned with the long-term interests of the Company’s shareholders and his commitment to the Company includes a purchase of $2,500,000 of newly issued common stock in Cherokee Inc., including $1,500,000 purchased on August 26th.”  Concurrent with this announcement, the Compensation Committee has granted to Mr. Stupp an option to purchase an additional 300,000 shares of common stock, the terms of which are described below.  Margolis continued, “Henry has presented us with new and exciting ideas that will further expand upon the Company’s successful global network.  On behalf of our shareholders, our Board of Directors and our executive team, we look forward to great success under Henry’s leadership.”

Henry Stupp, CEO of Cherokee Inc. said, “This is the opportunity of a lifetime!  I am proud to join the Company that pioneered the “Retail-Direct” licensing model, first in America through a successful collaboration with Target Corporation, and subsequently with premiere retailers in over thirty countries worldwide.  Cherokee, established in 1973, is a top-selling “family-lifestyle” brand that represents the authentic American lifestyle to a global audience.  The financial strength of the Company provides opportunities to grow our portfolio of brands and pursue prudent acquisitions.”  Stupp continued, “I especially look forward to collaborating with our retail partners and working with the outstanding management team at Cherokee, including Chief Operating Officer Howard Siegel, and the Company’s three regional Presidents.”

Born in Montreal, Canada, Mr. Stupp relocated to southern California in 1995.  He is one of the original founders of Novel Teez Designs (later known as NTD Apparel), a multi-divisional fashion apparel supplier and market leader for many licensed and branded programs.  During his 20+ year tenure with NTD, Mr. Stupp successfully identified, negotiated and introduced over 200 well-known brands and licenses, building a strong reputation as an industry leader.

Cherokee’s Compensation Committee approved the grant of stock options to Mr. Stupp as inducement grants outside of Cherokee’s 2006 Equity Incentive Plan (“Plan”).  This grant of stock options was entered into as an inducement material for Mr. Stupp to enter into employment with Cherokee. Cherokee is providing this information in accordance with NASDAQ Listing Rule 5635(c)(4).

While the stock option grant was made outside of the Plan, the grant is consistent with applicable terms of the Plan, which is available with the Company’s SEC filings.  The stock option has an exercise price of $18.30 per share, which is equal to the closing price of Cherokee’s common stock on the date of approval of the option grant by Cherokee’s Compensation Committee.  The option has a term of six (6) years.   The option vests in five (5) equal annual installments beginning on January 31, 2012 contingent upon Mr. Stupp’s continued service to the Company. Additionally, vesting of half of the shares subject to the option is contingent upon Mr. Stupp’s purchase of an additional $1,000,000 worth or shares of common stock on or before January 31, 2011.

About Cherokee Inc.

Cherokee Inc., is a worldwide marketer and manager of brands it owns (Cherokee, Sideout, Carole Little and others) and represents.  Currently, Cherokee has licensing agreements in a number of categories, including family apparel, fashion accessories and footwear, as well as home furnishings and recreational products.  Premier clients for the Cherokee brand around the world include Target Stores (U.S.), Tesco (U.K., Ireland and certain Central European countries), Zellers (Canada), Pick ‘n Pay (South Africa), Falabella (Chile, Peru and Colombia), Arvind Mills (India and certain Middle Eastern countries), Shufersal LTD. (Israel), Comercial Mexicana (Mexico), Eroski (Spain) and RT-Mart (Peoples Republic of China). Premiere clients for Cherokee’s other brands include the TJX Companies (U.S., Canada and Europe) for the Carole Little brands, and Shanghai Bolderway (China) and for the Sideout Brand.  Cherokee also placed the Laila Ali brand with IBB for beauty and personal care.

Statements included within this news release that are not historical in nature constitute forward-looking statements for the purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995.  When used, the words “anticipates”, “believes”, “expects”, “may”, “should” and similar expressions are intended to identify such forward-looking statements.  Forward-looking statements included in this press release (including, without limitation, express or implied statements regarding the transition of Mr. Margolis’ role and potential future business development) involve known and unknown risk and uncertainties that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Such risks and uncertainties, include, but are not limited to, the outcome of the vote at the upcoming stockholder meeting, the effect of national, international and regional economic conditions, the financial condition of the apparel industry and the retail industry, the overall level of consumer spending domestically and internationally, the effect of intense competition in the industry in which the Company operates, adverse changes in licensee or consumer acceptance of products bearing the Company’s brands as a result of fashion trends or otherwise, the ability and/or commitment of the Company’s licensees to design, manufacture and market Cherokee, Sideout and Carole Little branded products, the Company’s dependence on a select group of licensees for most of the Company’s revenues, the Company’s dependence on its key management personnel and adverse determinations of claims, liabilities or litigations.  A further list and description of these risk, uncertainties and other matters can be found in the Company’s Annual Report on Form 10-K for Fiscal Year 2010, and in its periodic reports on Forms 10-Q and 8-K (if any).  Undue reliance should not be placed on the forward-looking statements contained herein because some or all of them may turn out to be wrong.  The Company disclaims any intent or obligation to update any of the forward-looking statements contained herein to reflect future events and developments.