CHEROKEE INC. (NASDAQ:CHKE) Files An 8-K Entry into a Material Definitive Agreement

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CHEROKEE INC. (NASDAQ:CHKE) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01Entry into a Material Definitive Agreement.

Amendment to Cerberus Credit Facility

On August 11, 2017, Cherokee Inc. (the“Company”) entered into an amendment (the “Cerberus Amendment”) of its senior secured credit facility (the“Cerberus Credit Facility”) with Cerberus Business Finance, LLC (“Cerberus”).The Amendment includes a waiver of all defaults under the Cerberus Credit Facility arising from the Company’s failure to comply with financial covenants thereunder as of April 28, 2017. As of April29, 2017, the Company had approximately $49.2 million in principal amount of outstanding indebtedness owed under the Cerberus Credit Facility, all of which is due in December 2021.

to the Cerberus Amendment, (i)the required leverage ratio (as defined and calculated in the Cerberus Credit Facility) has been amended 16.00 to 1.00 through July31, 2017, 10.50 to 1.00 through October31, 2017, and decreasing ratios at the end of each of the Company’s fiscal quarters thereafter as set forth therein; (ii)the required fixed charge coverage ratio (as defined and calculated in the Cerberus Credit Facility) has been amended to 0.25 to 1.00 through July31, 2017, 0.35 to 1.00 through October31, 2017, and increasing ratios at the end of each of the Company’s fiscal quarters thereafter as set forth therein; (iii)the Company has agreed to a new liquidity covenant that requires the Company to maintain an amount of unrestricted cash on-hand, together with the availability under the revolving credit facility under the Cerberus Credit Facility, of no less than $3.0 million, and (iv)the parties agreed to certain additional administrative amendments. The Cerberus Amendment also provides that, if at any time the new liquidity covenant is not satisfied and Cerberus submits a written capital demand, the Company would be required to complete an equity financing resulting in net cash proceeds to the Company of the amount requested by Cerberus in such demand, subject to an aggregate maximum of approximately $5.5 million and certain additional conditions (such financings, the“Committed Financings”).

As a condition to effectiveness of the Cerberus Amendment, the Company was required to: (i)complete the Concurrent Financing, as defined and described below, and (ii)obtain a firm commitment from one or more investors to fund one or more Committed Financings if required on or prior toMarch 5, 2018, which is described below.

Concurrent Financing and Committed Financing

On August11, 2017, the Company and each of several investors, including certain of the Company’s directors, officers and large stockholders, entered into common stock purchase agreements (the“Purchase Agreements”) to effect the Concurrent Financing and agree to the Committed Financing as required by the Cerberus Amendment. to the terms of the Purchase Agreements, on August11, 2017, the investors agreed to purchase, and the Company agreed to issue and sell, an aggregate of 947,870 shares of the Company’s common stock in a private placement financing at a per share purchase price of $4.22 (the “Initial Price”), for net cash proceeds to the Company of approximately $4.0 million (the“Concurrent Financing”). The Concurrent Financing is expected to close on August 18, 2017. In addition, to the terms of the Purchase Agreements, each investor has agreed to participate in the Committed Financings, such that, if the Company notifies any such investor on or before March5, 2018 of a failure to meet the new liquidity covenant set forth in the Cerberus Amendment, then such investor will be obligated to purchase in a private placement financing additional shares of the Company’s common stock as requested based on a per share purchase price equal to the lower of the Initial Price, 90% of the average closing price of the Company’s common stock for the 20 days prior to the date of the Company’s notification, or the closing price of the Company’s common stock on the day prior to the Company’s notification, subject to certain other conditions and caps, including that the aggregate number of shares issuable in the Concurrent Financing and the Committed Financings shall not exceed 19.9% of the total number of shares of the Company’s common stock outstanding on the date of this Report. The maximum aggregate value of the commitments for the Committed Financings from all investors is approximately $5.5 million. In addition, to the terms of the Purchase Agreements, in consideration for the agreement of the investors to participate in the Committed Financings, the Company has issued to the investors warrants to purchase up to an aggregate of 326,695shares of the Company’s common stock at an exercise price equal to the Initial Price. The warrants are exercisable at any time from March5, 2018 until the seven-year anniversary of the initial issuance date, may be exercised in cash or on a “cashless”

basis, and are subject to customary adjustments in the event of stock dividends or other distributions, stock splits, or mergers, reclassifications or similar transactions.

Certain terms of the Concurrent Financing and the Committed Financing with respect to each director, officer and significant stockholder participating therein are as follows:

No.ofShares

Aggregate

Aggregate

Subjectto

PurchasePrice

PurchasePriceof

No.ofShares

Warrant

ofShares

SharesThatMay

Purchasedin

Issuedin

Purchasedin

BePurchasedin

Aggregate

NameofInvestor,

Concurrent

Concurrent

Concurrent

Committed

PurchasePrice

RelationshipwiththeCompany

Financing

Financing

Financing

Financings

ofallShares(1)

Jess Ravich, Director

473,934

237,834

$

2,000,000

$

4,014,638

$

6,000,000

Robert Galvin, Chairman of the Board

23,697

5,924

$

100,000

$

100,000

$

200,000

Howard Siegel, Chief Operating Officer

23,697

—

$

100,000

$

—

$

100,000

Cove Street Capital

236,967

59,241

$

1,000,000

$

1,000,000

$

2,000,000

Other Investors as a Group

189,574

23,696

$

800,000

$

400,000

$

1,200,000

(1)

Assumes the purchase by each investor of its maximum commitment in the Committed Financings.

Ravich Loan

On December 7, 2016, the Company obtained an unsecured receivables funding loan for $5.0 million from Mr.Ravich, a member of the Board of Directors (such loan, the“Ravich Loan”). As of June5, 2017, the Company and Mr.Ravich mutually agreed to extend the maturity date of the amounts owed thereunder to July31, 2017. As of August 11, 2017, the Company and Mr.Ravich mutually agreed to further extend the maturity date of the amounts owed thereunder to February 28, 2018. As of August11, 2017, borrowings under the Ravich Loan were approximately $1.5million.

Item 1.01Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information regarding the Amendment to Cerberus Credit Facility and the Ravich Loan set forth under Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.

Item 1.01Unregistered Sales of Equity Securities.

The information regarding the Concurrent Financing and the Committed Financings set forth under Item 1.01 of this Current Report on Form8-K is incorporated herein by reference.

None of the shares or warrants issued or issuable in connection with the Concurrent Financing and the Committed Financings (collectively, the“Securities”)have been registered under the Securities Act of 1933, as amended (the“Securities Act”), or any state securities laws and have been issued in reliance upon an exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) thereof and RegulationD thereunder, based on the offering of the Securities to a small number of investors, all of which has a pre-existing relationship with the Company; the lack of any general solicitation or advertising in connection with the offer and sale of the Securities; the representation by each investor to the Company that it is an accredited investor (as that term is defined in Rule 501 of RegulationD) and that it is purchasing the Securities for its own account and without a view to distribute them; and the

Company’s issuance of the Securities as restricted securities.The Securities may not be offered or sold in the United States without an effective registration statement or to an exemption from applicable registration requirements, and this Current Report on Form 8-K is not and shall not be considered an offer to sell or the solicitation of an offer to buy any of the Securities.

Item 1.01Financial Statements and Exhibits.

(d)Exhibits.

Exhibit No.

Description
4.1

Form of Warrant to Purchase Shares of Common Stock, issued on August11, 2017 by Cherokee Inc.
10.1

Form of Common Stock Purchase Agreement between Cherokee Inc. and the investor named therein.
10.2

Amendment No.1 to Financing Agreement, dated August11, 2017 and effective August11, 2017, by and among Cherokee Inc., Irene Acquisition Company B.V., the guarantors from time to time party thereto, the lenders from time to time party thereto, Cerberus Business Finance, LLC, as Collateral Agent and Cerberus Business Finance, LLC, as Administrative Agent.
10.3

Second Amendment to Promissory Note, dated August11, 2017, by and between Irene Acquisition Company B.V. and Ravich Revocable Trust of 1989.


CHEROKEE INC Exhibit
EX-4.1 2 ex-4d1.htm EX-4.1 chke_Ex4_1 Exhibit 4.1 NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,…
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About CHEROKEE INC. (NASDAQ:CHKE)

Cherokee Inc. is a marketer and manager of a portfolio of fashion and lifestyle brands it owns or represents, licensing the Cherokee, Liz Lange, Completely Me by Liz Lange, Hawk, Tony Hawk, Sideout, Carole Little, Everyday California , Flip Flop Shops and ale by alessandra brands and related brands in various consumer product categories and sectors. The Company operates in the segment of marketing and licensing of brand names and trademarks for apparel, footwear and accessories. It is a licensor of style focused lifestyle brands for apparel, footwear, home products and accessories. It performs a range of services, including marketing, solicitation of licensees, contract negotiations and administration and maintenance of license or distribution agreements, among others. It operates in the United States, Canada, Latin America, Asia, the United Kingdom and Europe. Its brands are licensed with retail and wholesale licensees in over 50 countries and approximately 9,000 retail locations.