EXHIBIT 4.1
DIRECTOR STOCK OPTION AGREEMENT
THIS DIRECTOR STOCK OPTION AGREEMENT (this "Agreement") is entered
into, effective as of ___________________ (the "Effective Date"), by and between
Cherokee Inc., a Delaware corporation (the "Company"), and ____________ (the
"Holder").
RECITALS
WHEREAS, in order to increase the proprietary and vested interest of
the members of the Company's Board of Directors (the "Board") to contribute
materially to the prosperity of the Company and to participate in the long-term
growth of the Company, the Company agreed at a meeting of the Board held on the
date hereof to grant options to purchase shares of the Company's Common Stock,
par value $0.02 per share ("Common Stock"), to each current member of the Board;
and
WHEREAS, Holder is a current member of the Board;
NOW, THEREFORE, the Company and the Holder covenant and agree as
follows:
1. Grant of the Option. For good and valuable consideration, the
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receipt of which is hereby acknowledged, the Company hereby grants to the Holder
stock options (the "Options") to acquire from the Company, from time to time on
the terms and conditions set forth herein, all or any portion of an aggregate of
_________________________________________ (______) authorized and unissued or
reacquired shares of Common Stock, each such share to be fully paid and non-
assessable, at the exercise price of $6.80 per share (the "Exercise Price").
Each of the number of shares of Common Stock into which the Options are
exercisable and the Exercise Price is subject to adjustment as provided in
Section 4 hereof.
2. Term of the Option. The Options will commence on the date hereof
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and will terminate on ___________________ at 5:00 P.M., Los Angeles time (the
"Expiration Date").
3. Vesting; Exercisability. The Holder's right to exercise all or
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any portion of the Options and receive the shares of Common Stock represented
thereby shall become immediately exercisable upon the Effective Date.
4. Adjustments In Options. (a) In the event of a merger,
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consolidation, recapitalization, reorganization, reclassification, separation,
stock dividend (but only on Common Stock), extraordinary cash dividend, stock
split, reverse stock split, combination of shares, or like change in the
corporate or capital structure of the Company, the plan administrator shall make
an appropriate and equitable adjustment in the number and kind of shares as to
which the Options, or portions thereof then unexercised, shall be exercisable,
and/or in the Options
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price per share, to the end that after such event the Director's proportionate
interest shall be maintained as before the occurrence of such event. Such
adjustment in the Options shall be made without change in the total price
applicable to the unexercised portion of the Options (except for any change in
the aggregate price resulting from rounding-off of share quantities or prices);
provided, however, that each such adjustment shall be made in such manner as not
to constitute a "modification" within the meaning of Section 424(h)(3) of the
Code. Any such adjustment made by the plan administrator shall be final and
binding upon the Director, the Company and all other interested persons.
(b) If the Company issues shares of Common Stock for a
consideration per share less than the Current Market Price per share on the date
the Company fixes the offering price of such additional shares, the Exercise
Price shall be adjusted in accordance with the formula:
P
-
E/1/ = E x O + M
-----
A
where:
E/1/ = the adjusted Exercise Price
E = the then current Exercise Price
O = the number of shares outstanding immediately prior to
the issuance of such additional shares
P = the aggregate consideration received for the issuance
of such additional shares
M = the Current Market Price per share on the date of
issuance of such additional shares
A = the number of shares outstanding immediately after the
issuance of such additional shares
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance. This
subsection (b) does not apply to:
(1) any of the transactions described in subsection (a) of
this Section 4,
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(2) the exercise of the Options, or the conversion or
exchange of other securities convertible or exchangeable for Common
Stock,
(3) Common Stock issued upon the exercise of rights or
warrants issued to the holders of Common Stock, or
(4) Common Stock issued to directors or employees of the
Company or any subsidiary thereof.
"Current Market Price" for purposes of this subsection (b)
shall mean the average of the Market Prices (as defined herein) for
the ten trading days prior to the date of the determination of Current
Market Price.
"Market Price" as of a given date shall mean:
(i) the closing price of a share of the Common Stock on the principal
exchange on which shares of the Company's Common Stock are then
trading, if any, on the day previous to such date, or, if shares were
not traded on the day previous to such date, then on the next
preceding trading day during which a sale occurred; or (ii) if such
Common Stock is not traded on an exchange but is quoted on NASDAQ or a
successor quotation system, (1) the last sales price (if the Common
Stock is then listed as a National Market issue under the NASD
National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the
Common Stock on the trading day previous to such date as reported by
NASDAQ or such successor quotation system; or (iii) if such Common
Stock is not publicly traded on an exchange and not quoted on NASDAQ
or a successor quotation system, the mean between the closing bid and
asked prices for the Common Stock, on the trading day previous to such
date; or (iv) if the Company's Common Stock is not publicly traded,
the fair market value established by the Board.
(c) For purposes of any computation respecting consideration
received pursuant to subsection (b) of this Section 4, the following shall
apply:
(1) in the case of the issuance of shares of Common Stock
for cash, the consideration shall be the amount of such cash, provided
that no deduction shall be made for any commissions, discounts or
other expenses incurred by the Company for any underwriting of the
issue or otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market
value thereof as determined in good faith by the Board (irrespective
of the accounting treatment thereof) , in its reasonable judgment
exercised in good faith and described in a Board resolution;
(3) in the case of the issuance of securities convertible
into or exchangeable for shares of Common Stock, the aggregate
consideration received,
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therefore, shall be deemed to be the consideration received by the
Company for the issuance of such securities plus the additional
minimum consideration, if any, to be received by the Company upon the
conversion or exchange thereof (the consideration in each case to be
determined in the same manner as provided in clauses (1) and (2) of
this subsection).
(d) No adjustment need be made for a transaction referred to in
subsections (a) and (b) of this Section 4 if the Holder is to participate in the
transaction on a basis and with notice that the Board determines to be fair and
appropriate in light of the basis and notice on which the Holder participates in
the transaction. No adjustment need be made for rights to purchase Common Stock
pursuant to a Company plan for reinvestment of dividends or interest. No
adjustment need be made for a change in the par value or no par value of the
Common Stock. To the extent the Options become convertible into cash, no
adjustment need be made thereafter as to the cash. Interest will not accrue on
the cash.
(e) Anything in this Section 4 to the contrary notwithstanding, no
adjustment in the Exercise Price shall be required unless such adjustment would
require an increase or decrease of at least one percent in such price; provided,
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however, that any adjustments which by reason of this subsection are not
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required to be made shall be carried forward and taken into account (together
with any other adjustments so carried forward) in any subsequent adjustment. All
calculations under this Section 4 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be, but in no event shall the
Company be obligated to issue fractional shares upon the exercise of all or any
portion of the Options.
(f) Immediately upon any adjustment of the Exercise Price pursuant
to this Section 4, the Company shall send written notice thereof to the Holder
(by first-class mail, postage prepaid) , which notice shall state the Exercise
Price resulting from such adjustment, and any increase or decrease in the number
of shares of Common Stock to be acquired upon exercise of the Options, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.
5. Adjustment for Reorganization, Consolidation, Merger, etc. In case
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of any capital reorganization or reclassification of the Common Stock of the
Company, or in case of any consolidation or merger of the Company with or into
any other corporation, or in case of any sale to another corporation of the
properties and assets of the Company as or substantially as an entirety, then,
and in each such case, the Holder shall have the right to receive upon the
exercise hereof as provided in Section 8 hereof, at any time after the
consummation of such reorganization, reclassification, consolidation, merger or
sale, the kind and amount of shares of stock or other securities or property
receivable upon such reorganization, reclassification, consolidation, merger or
sale by a holder of the number of shares of Common Stock issuable upon exercise
of the Options immediately prior to such reorganization, reclassification,
consolidation, merger or sale; and in any such case, if necessary, the
provisions set forth herein with respect to the rights and interests thereafter
of the Holder shall be appropriately adjusted as to be applicable, as nearly as
may reasonably be, to any shares of stock or other securities or property
thereafter receivable upon the exercise of the Options. The above provisions of
this Section 5 shall similarly apply to successive reorganizations,
reclassifications and changes of
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shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
6. Notice of Stock Dividends, Subscriptions, Rec1assifications,
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Consolidations. Mergers. Etc. In case the Company shall pay any stock dividend
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or make any distribution other than a cash dividend to the holders of its Common
Stock, or shall offer for subscription to the holders of its Common Stock any
additional Common Stock or any stock of any class of the Company or any other
securities, or in the case of any capital reorganization or reclassification of
the capital stock of the Company or a consolidation or merger of the Company
with another corporation, or the final dissolution, liquidation or winding up of
the Company, or a sale of all or substantially all its assets (whether voluntary
or involuntary), or in case the company shall take any action that would require
an adjustment of the Exercise Price pursuant to Section 4 (a) or 4 (b) and if
the Company does not arrange for the Holder to participate pursuant to Section 4
(d); then in any one or more of said cases, the Company shall mail to the
Holder at the address of the Holder on the records of the Company, at least
fifteen days' prior notice of the date on which the books of the Company shall
close (or a record shall be taken) for such stock dividend, distribution or
subscription, rights, or such reorganization, reclassification, consolidation,
merger, dissolution, liquidation, winding up, sale or such action shall take
place, as the case may be. Such notice shall also specify the date as of which
stockholders of record shall be entitled to participate in such dividend,
distribution or subscription rights or to exchange their shares of Common Stock
for other securities or property pursuant to such reorganization,
reclassification, consolidation or merger, or to receive their respective
distribution shares in the event of such dissolution, liquidation, winding up or
sale, as the case may be. Such notice shall also set forth a statement of the
effect of such action (to the extent then known) on the Exercise Price and the
kind and amount of shares of capital stock and property receivable upon exercise
of the Options.
7. Reservation of Shares. The Company will reserve and have at all
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times available sufficient shares of Common Stock deliverable against the due
exercise of all or any portion of the Options to satisfy the rights and
privileges contained herein.
8. Exercise of the Options. (a) All or any portion of the Options may
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be exercised, in whole or in part, by the Holder hereof by completing and duly
executing a notice of exercise in the form of Exhibit "A" annexed hereto, and
delivering the notice to the Company at any time before the Expiration Date,
accompanied by payment in cash or by certified or official bank check, payable
to the order of the Company, of the sum obtained by multiplying the number of
shares of Common Stock being purchased upon such exercise by the Exercise Price
then in effect. Unless the Options have expired or been exercised in full, the
Company and the Holder agree that the Company may affix to this Agreement an
appropriate notation indicating the number of shares for which Options were
exercised and return this Agreement to the Holder.
(b) As soon as practicable after any exercise of all or any portion of the
Options and payment of the sum payable upon such exercise, and in any event
within 10 days thereafter, the Company, at its expense (including the payment by
it of any applicable issue taxes), will cause to be issued in the name of and
delivered to the Holder, or as the Holder (upon payment by the Holder of any
applicable transfer taxes) may direct, a certificate or certificates for the
number of fully paid and non-assessable shares or other securities or property
to which the Holder shall be entitled upon
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such exercise, plus, in lieu of any fractional shares to which the Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current fair market value ("Market Value") of one full share. The Market Value
shall be the Market Price (as defined in Section 4 hereof) on the business day
next preceding the day of exercise. Issuance and delivery of the shares of
Common Stock deliverable on the due exercise of the Options may be postponed by
the Company and its transfer agent during any period, not exceeding forty days,
for which the Common Stock transfer books of the Company are closed between (1)
the record date set by the Board for the determination of holders of Common
Stock entitled to vote at or to receive notice of any stockholders' meeting, or
entitled to receive payment of any dividends or to any allotment of rights, or
to exercise rights in respect of any change, conversation or exchange of capital
stock, and (2) the date of such meeting of stockholders, the date for the
payment of such dividends, the date for such allotment of rights, or the date
when any such change or conversion or exchange of capital stock shall go into
effect, as the case may be. In addition, if any law or regulation of the
Securities and Exchange Commission (the "SEC") or of any other federal or state
governmental body having jurisdiction shall require the Company or the Holder to
take any action prior to issuance to the Holder of the shares of Common Stock
specified in the written notice of exercise, or if any listing agreement between
the Company and any national securities exchange requires such shares to be
listed prior to issuance, the date for the delivery of such shares shall be
adjourned until the completion of such action and/or such listing.
9. Fractional Shares. In no event shall the Company be required to
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issue fractional shares upon the exercise of all or any portion of the Options.
10. Non-transferability. The Options are not transferable other than
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(a) by operation of law, (b) to one or more trusts of which the Holder is a
trustor, or (c) by will or the laws of descent and distribution. The Options
may be exercised during the lifetime of the Holder only by the Holder or his or
her court-appointed legal representative.
11. Rights as Stockholder. The Options, in and of itself, do not
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create rights in the Holder as a stockholder of the Company; provided that upon
any such exercise of the Options or any portion thereof that complies with the
requirements of this Agreement, the Holder shall immediately be vested with all
the rights afforded to other stockholders of the Company, regardless of when the
Company actually delivers certificates representing Common Stock to the Holder.
12. Further Assurances. The Holder and the Company agree, from time
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to time, to execute such additional documents as the other party hereto may
reasonably require to effectuate the purposes of this Agreement.
13. Binding Effect. This Agreement shall be binding upon the Holder,
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the Company, the Holder's heirs, successors and assigns, and any corporation or
other entity that succeeds to the rights and liabilities of the Company.
14. Cost of Litigation. In any action at law or in equity or any
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arbitration to enforce any of the provisions or rights under this Agreement, the
unsuccessful party to such litigation, as determined by the court or arbitrator
in a final judgment or decree, shall pay the successful party or parties all
costs, expenses and reasonable attorneys' fees incurred by the
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successful party or parties (including without limitation costs, expenses and
fees on any appeals), and if the successful party recovers judgment in any such
action or proceeding, such costs, expenses and attorneys' fees shall be included
as part of the judgment.
15. Entire Agreement; Modifications. This Agreement constitutes the
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entire agreement and understanding between the Company and the Holder regarding
the subject matter hereof. No modification of the Options or this Agreement, or
waiver of any provision of this Agreement, shall be valid unless in writing and
duly executed by the Company and the Holder. The failure of any party to
enforce any of that party's rights against the other party for breach of any of
the terms of this Agreement shall not be construed as a waiver of such rights as
to any continued or subsequent breach.
16. Governing Law. This Agreement shall be governed by and
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interpreted under the law of the State of California applicable to agreements
wholly negotiated, executed and to be performed in that state.
17. Notices. Any notices that either party to this Agreement is
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required or may desire to give to the other shall be given by sending the same
to the other at the address below, or at such other address as may be designated
in writing by any party in a notice to the other given in the manner prescribed
in this Section 17. All such notices shall be in writing and delivered by
telex, facsimile, personal delivery or if sent by mail, certified or registered
mail, return receipt requested deposited so addressed, postage prepaid. If sent
by mail notices shall be deemed delivered five (5) business days after deposit
in the mail. The addresses to which any such notices shall be given are the
following:
To Holder:
Name:
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Address:
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Facsimile No.:
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To the Company:
Xxxxx Xxxxxxx
c/o Cherokee Inc.
0000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxxxxxxxxx 00000
Facsimile No. (000) 000-0000
18. Severability. Whenever possible, each provision of this
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Agreement shall be interpreted so as to be effective and valid under applicable
law. If any provision of this Agreement is prohibited or deemed invalid under
any applicable law, however, such provision
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shall be ineffective only to the extent of such prohibition or invalidity, and
neither the remainder of such provision nor this Agreement shall be invalidated
as a result.
19. Counterparts. This Agreement may be executed by the parties in
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one or more counterparts, all of which taken together shall constitute one
instrument.
20. Jurisdiction. The parties hereto agree to submit to the
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exclusive jurisdiction of the Superior Court of the State of California, County
of Los Angeles, any controversy, claim or dispute arising out of or relating to
this Agreement or the method and manner of performance thereof or the breach
thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
"Company" Cherokee Inc.
By:_______________________________
Name: Xxxxx Xxxxxxx
Its: Secretary & CFO
"Holder" __________________________________
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