Acquisitions and Transactions

9 Months Ended

Oct. 27, 2012

Acquisitions and Transactions

Acquisitions and Transactions

(2)   Acquisitions and Transactions

Liz Lange and Completely Me by Liz Lange Brands

On September 4, 2012, Cherokee and LLM Management Co., LLC (the “Seller”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which Cherokee acquired various assets related to the “Liz Lange” and “Completely Me by Liz Lange” brands (the “Assets” and such transaction, the “Acquisition”). The Acquisition closed on September 4, 2012.   As consideration for the Acquisition, Cherokee agreed to pay a cash purchase price equal to $13.1 million, with $12.6 million paid by Cherokee concurrently with the closing and with $500,000 of which we agreed to place in an escrow fund that is to be released no later than March 31, 2013, subject to any funds which we recover or that are to be retained pursuant to indemnification claims.  In addition, Cherokee agreed to pay to the Seller additional earn-out payments of $400,000 and $500,000 (for a total of up to $900,000 in contingent consideration), which consideration is payable upon our satisfaction of certain revenues attributable to the Assets during the remainder of 2012 and during 2013.  In addition, as part of the Acquisition, Cherokee agreed to assume the Seller’s obligations under various agreements, which include a consulting agreement with Ms. Lange as well as certain existing license agreements relating to the Assets.  The Asset Purchase Agreement contains various covenants, indemnities, and representations and warranties that are customary for transactions of this type.  For additional information regarding the Acquisition and the Asset Purchase Agreement, please see Cherokee’s Current Report on Form 8-K dated September 4, 2012 and filed with the Commission on September 6, 2012.

There were no trademark acquisitions during the comparable period last year.

Cherokee Brands LLC

On October 26, 2012, the Company contributed substantially all the domestic rights of the Company’s “Liz Lange” and “Completely Me by Liz Lange” brands to Cherokee Brands, LLC, a newly formed, wholly-owned subsidiary of the Company.  No gain or loss was recognized as a result of this intercompany transaction.  Further, as a condition to such contribution, Cherokee Brands, LLC executed a continuing security agreement, a trademark security agreement and a continuing guarantee in substantially the same forms that were executed by Cherokee and Spell C. LLC (as applicable) pursuant to our Loan Agreement with JPMorgan Chase.