SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From _________ To _____________
Commission File Number: 1-14208
MOSSIMO, INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-0684524
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
15320 Barranca Parkway 92718
Irvine, California (Zip Code)
(Address of principal
executive offices)
(714) 453-1300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the proceeding 12 months (or
for any shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes ..... No ..X..
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Common Stock, par value 15,000,000
$.001 per share (Outstanding on May 10, 1996)
(Class)
Exhibit Index on Page 15
Page 1 of 55 <PAGE>
MOSSIMO, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Balance Sheets as of December 31, 1995
and March 31, 1996 (unaudited) . . . . . . . . . . . . . . 3
Statements of Income for the three month periods
ended March 31, 1995 and 1996 (unaudited) . . . . . . . . . 4
Statements of Cash Flow for the three month
periods ended March 31, 1995 and 1996 (unaudited) . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . 7
ITEM 2 - Management's Discussion and Analysis of Results
of Operations and Financial Condition . . . . . . . . . . . 9
PART II - OTHER INFORMATION
ITEM 4 - Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . 13
ITEM 6 - Exhibits and Reports on Form 8-K . . . . . . . . . 13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 14
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . 15
EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . 16
Page 2 of 55 <PAGE>
MOSSIMO, INC.
BALANCE SHEETS
(in thousands)
(unaudited)
ASSETS
DECEMBER 31 MARCH 31,
1995 1996
----------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 481 $11,321
Accounts receivable, net 844 1,464
Due from factor 3,255 13,080
Royalties receivable 683 841
Inventories 9,773 11,430
Prepaid expenses 588 725
Deferred taxes - 700
------- -------
Total current assets 15,624 39,561
PROPERTY AND EQUIPMENT, net 1,420 1,547
OTHER ASSETS 118 125
------- -------
$17,162 $41,233
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,032 $1,636
Accrued liabilities 887 2,865
Income taxes payable 6 1,492
Current portion of deferred rent 28 40
Current portion of long-term debt 26 42
Current portion of capital lease obligations 24 8
S distribution note - 150
------- -------
Total current liabilities 3,003 6,233
DEFERRED RENT, net of current portion 94 72
LONG-TERM DEBT, net of current portion 17 49
CAPITAL LEASE OBLIGATIONS, net of current portion 13 15
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.001; authorized
shares 3,000,000, no shares issued or
outstanding - -
Common stock, par value $.001; authorized
shares 30,000,000, issued and outstanding
13,000,000 and 15,000,000 shares 13 15
Additional paid-in capital 1,187 31,931
Retained earnings 12,835 2,918
------- -------
14,035 34,864
------- -------
$17,162 $41,233
======= =======
See accompanying notes to financial statements
Page 3 of 55 <PAGE>
MOSSIMO, INC.
STATEMENTS OF INCOME
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996
(in thousands, except per share data)
(unaudited)
1995 1996
---- ----
NET SALES $ 16,793 $ 24,401
COST OF SALES 8,943 13,873
------- -------
GROSS PROFIT 7,850 10,528
ROYALTY INCOME 1,058 1,282
OPERATING EXPENSES
General and administrative 1,323 1,679
Selling 1,376 2,228
Marketing 545 662
Design 202 453
------- -------
3,446 5,022
------- -------
OPERATING INCOME 5,462 6,788
OTHER EXPENSE (INCOME):
Interest expense (29) 62
Other - (2)
------- -------
(29) 60
------- -------
INCOME BEFORE INCOME TAXES 5,491 6,728
PROVISION FOR INCOME TAXES 97 910
------- -------
NET INCOME $ 5,394 $ 5,818
======= =======
PRO FORMA DATA
Historical income before provision
for income taxes $ 6,728
Pro forma provision for income taxes 2,758
-------
PRO FORMA NET INCOME $ 3,970
=======
PRO FORMA NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ .28
=======
PRO FORMA WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,982
=======
See accompanying notes to financial statements
Page 4 of 55 <PAGE>
MOSSIMO, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996
(in thousands)
(unaudited)
1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES: ---- ----
Net income $ 5,394 $ 5,818
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 76 111
Loss on disposition of property and
equipment 27 2
Deferred rent (16) (10)
Provision for doubtful receivables 5 13
Changes in:
Accounts receivable (665) (620)
Due from factor (5,654) (10,260)
Royalties receivable (83) (158)
Inventories (2,153) (1,657)
Prepaid expenses - (137)
Deferred Taxes - (700)
Other assets (11) (7)
Accounts payable 1,848 (396)
Accrued liabilities 211 1,978
Income taxes payable 54 1,486
------- -------
Net cash used by operating activities (967) (4,537)
======= =======
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisition of property and
equipment (104) (185)
Proceeds from disposition of property
and equipment 76 -
------- -------
Net cash used by investing activities (28) (185)
======= =======
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (10) (7)
Repayment of capital lease obligations (12) (14)
Net change in factor advances 1,852 422
Dividends paid (912) (17,208)
Net proceeds from issuance of common stock - 32,369
Repayment of note payable to stockholder (225) -
------- -------
Net cash used by financing activities 693 15,562
======= =======
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (302) 10,840
CASH AND CASH EQUIVALENTS,
beginning of period 407 481
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 105 $ 11,321
======= =======
Page 5 of 55 <PAGE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for:
Interest $ 3 $ 124
======= =======
Income taxes $ 42 $ 117
======= =======
SCHEDULE OF NONCASH INVESTING AND FINANCING TRANSACTIONS:
Contractual obligations incurred for
the acquisition of equipment $ 20 $ 55
======= =======
S distribution note payable to
stockholder $ - $ 150
======= =======
See accompanying notes to financial statements
Page 6 of 55 <PAGE>
MOSSIMO, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The accompanying financial statements of Mossimo, Inc. ("Mossimo"
or the "Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC").
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
("GAAP") for complete financial statements. The financial
statements should be read in conjunction with the financial
statements and notes thereto included in the Company's registration
statement on Form S-1 (33-80597) declared effective by the SEC on
February 21, 1996.
In the opinion of management, the financial statements contain all
adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the balance sheets as of
December 31, 1995 and March 31, 1996, the statements of income for
the three month periods ended March 31, 1995 and 1996, and the
statements of cash flows for the three month periods ended
March 31, 1995 and 1996. Operating results for the three month
period ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the entire fiscal year ending
December 31, 1996.
On February 15, 1996, the company effected a 13,000-for-one stock
split of its common stock. All share and per share amounts
included in the accompanying financial statements and footnotes
have been restated to reflect the stock split.
2. Initial Public Offering
-----------------------
In February 1996, the Company completed an initial public offering
of 2,000,000 shares of its common stock for $18 per share, netting
proceeds to the Company after underwriting discounts and expenses
of approximately $32.4 million. Proceeds to the Company were used
to repay indebtedness consisting of $5.6 million in outstanding
advances under the Company's factoring agreement and pay
$17.2 million in connection with the final S corporation
distribution. (See Note 5.) The remaining proceeds will be used
for general corporate purposes, including the construction of
in-store shops and tenant improvements and equipment for a new
headquarters and distribution facility expected to be occupied by
the Company in the first half of 1997.
3. Pro Forma Data
--------------
PRO FORMA NET INCOME - Pro forma net income represents the results
of operations adjusted to reflect a provision for income taxes on
historical income before provision for income taxes, which gives
effect to the change in the Company's income tax status to a
C corporation as a result of the public sale of its common stock.
Page 7 of 55 <PAGE>
The principal difference between the pro forma income tax rate and
the federal statutory rate of 35% relates to state income taxes.
PRO FORMA NET INCOME PER SHARE - Historical net income per common
share is not presented because it is not indicative of the ongoing
entity.
Pro forma net income per share has been computed by dividing pro
forma net income by the weighted average number of shares of common
stock outstanding during the period.
4. Income Taxes
------------
Prior to February 27, 1996, the Company had elected to be taxed as
an S corporation under the provisions of the Internal Revenue Code
and similar statutes in the State of California. Accordingly, the
Company's taxable income was treated as if it were distributed to
the sole stockholder, who was responsible for payment of taxes
thereon. In addition, the Company was subject to a California
franchise tax rate of 1.5%. Effective February 27, 1996, the
Company converted to a C corporation and became subject to Federal
and State income taxes on an ongoing basis. As a result, the
Company recorded $700,000 of deferred income tax assets on
February 27, 1996.
5. Stockholders' Equity
--------------------
In conjunction with its initial public offering, the Company
terminated its S corporation status and distributed to its
stockholder $17.2 million representing previously earned and
undistributed taxable S corporation earnings as of February 27,
1996 in the form of promissory notes (S distribution notes) . The
estimated remaining amount payable to stockholder for previously
earned and undistributed taxable S corporation earnings under the S
distribution notes was $150,000 at March 31, 1996.
In accordance with a regulation of the Securities and Exchange
Commission, the Company reclassified $1,624,000 to additional paid
in capital for that portion of the previously earned and
undistributed taxable S corporation earnings at February 27, 1996
which was in excess of the balance of retained earnings at such
date.
6. Credit Agreement
----------------
In February 1996, the Company entered into a $10 million unsecured
line of credit with a bank. The credit agreement contains certain
restrictive covenants that require the maintenance of various
financial levels and ratios and prohibits the payment of dividends
by the Company.
Page 8 of 55 <PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion includes the operations of
Mossimo for each of the periods discussed. This discussion and
analysis should be read in conjunction with the Company's
Registration Statement on Form S-1 (33-80597) declared effective by
the SEC on February 21, 1996.
Results of Operations
---------------------
The following table sets forth pro forma operating
results (as a percentage of net sales), for the periods indicated.
Pro forma operations reflect adjustments to historical operating
results for federal and state income taxes as if the Company had
been taxed as a C Corporation rather than an S Corporation.
Three Month Period
Ended March 31,
----------------------------
(in thousands)
1995 1996
---- ----
Net Sales $16,793 100.0% $24,401 100.0%
Cost of Sales 8,943 53.3 13,873 56.9
------ ----- ------ -----
Gross Profit 7,850 46.7 10,528 43.1
Royalty Income 1,058 6.3 1,282 5.3
Operating Expenses:
General and administrative 1,323 7.9 1,679 6.9
Selling 1,376 8.2 2,228 9.1
Marketing 545 3.2 662 2.7
Design 202 1.2 453 1.9
------ ----- ------ -----
3,446 20.5 5,022 20.6
------ ----- ------ -----
Operating Income 5,462 32.5 6,788 27.8
Other Expense (Income) (29) (0.2) 60 0.2
------ ----- ------ -----
Income Before Income Taxes 5,491 32.7 6,728 27.6
Pro Forma Provision for
Income Taxes 2,238 13.3 2,758 11.3
------ ----- ------ -----
Pro Forma Net Income $ 3,253 19.4% $ 3,970 16.3%
====== ===== ====== =====
Page 9 of 55 <PAGE>
Three Months Ended March 31, 1996 and 1995
------------------------------------------
Net sales increased 45.3% to $24.4 million in 1996 from
$16.8 million in 1995, an increase of $7.6 million. The Company's
increase in net sales was principally driven by increased sales to
new and existing wholesale customers as they expanded their
purchases to include a more complete line of Mossimo products.
Men's activewear represented approximately 53.4% of the Company's
net sales in 1996, representing an increase of approximately 16.9%
over men's activewear net sales in 1995. Men's sportswear
represented approximately 42.3% of the Company's net sales in 1996,
representing an increase of approximately 109.5% over such sales in
1995, primarily as a result of increased sales of knit and woven
shirts. Net sales of the Company's eyewear increased approximately
24.5% to $581,000 in 1996 from $467,000 in the comparable period in
1995.
Gross profit increased to $10.5 million in 1996 from
$7.9 million in 1995. Gross profit as a percentage of net sales
decreased to 43.1% in 1996, from 46.7% in 1995. The decrease
resulted primarily from a change in the mix of sales with
sportswear representing a higher percentage of sales in 1996 than
in 1995.
Royalty income increased 21.2% to $1.3 million in 1996
from $1.1 million in 1995, primarily due to increased sales by the
Company's women's swimwear and bodywear licensee and, to a lesser
extent, increased sales by the Company's Canadian licensee.
Operating expenses increased to $5.0 million in 1996 from
$3.4 million in 1995. Operating expenses increased in all
categories. Selling expense increased to $2.2 million in 1996 from
$1.4 million in 1995 primarily as a result of commissions on higher
levels of sales. Increases in general and administrative
($1.7 million in 1996 compared to $1.3 million in 1995), marketing
($662,000 in 1996 compared to $545,000 in 1995) and design
($453,000 in 1996 compared to $202,000 in 1995) expenses reflect in
part increases in staffing levels necessary to manage higher levels
of net sales and the expansion of the Company's product offerings,
including men's sportswear and the anticipated introduction of a
women's line. Marketing increases also reflected increased levels
of advertising in 1996 over 1995. Operating expenses as a
percentage of net sales increased from 20.5% in 1995 to 20.6% in
1996.
Interest expense increased to $62,000 in 1996 compared to
none in 1995. The increase was attributable to cash advances from
the Company's factor during portions of the 1996 quarter.
Due to the Corporation's conversion to a C corporation in
1996, the provision for income taxes increased from $97,000 in the
1995 period to $910,000 in the 1996 period.
Page 10 of 55 <PAGE>
Liquidity and Capital Resources
-------------------------------
Historically, the Company has relied primarily upon
internally generated funds supplemented by borrowings as needed to
finance its operations and make distributions to its stockholder.
Cash used by operating activities (including changes in amounts due
to or from its factor) totaled $4.5 million and $967,000 in the
1996 and 1995 periods, respectively. Cash used by the Company's
investing activities totaled $185,000 and $28,000 in the 1996 and
1995 periods, respectively, primarily for the purchase of property
and equipment. Cash provided by financing activities in 1996
totaled $15.6 million, principally reflecting the net proceeds of
the sale of the common stock in the Company's initial public
offering less dividends paid to its stockholder prior to such
offering. Cash provided by financing activities in 1995 totaled
$693,000. At March 31, 1996, the Company had working capital of
$33.3 million.
Capital expenditures totaled $185,000 and $104,000 in the
1996 and 1995 periods, respectively. Capital expenditures in 1996
primarily included funds for construction of additional in-store
shops.
In May 1996, the Company entered into a 10 year lease for
its new headquarters and distribution facility in Irvine,
California which it expects to occupy in the first or second
quarter of 1997. The Company anticipates that it will incur
approximately $2.5 million in capital expenditures in connection
with such facility primarily for tenant improvements and equipment.
The Company intends to finance its capital expenditures with a
combination of proceeds from its initial public offering, cash
generated from operations and lessor financing.
Historically, the Company has sold a substantial portion
of its trade accounts receivable to a factor which assumes the
credit risk with respect to collection of such accounts. The
factor pays the Company the receivable amount after the factor
receives payment from the Company's customer or, if earlier,
shortly following the bankruptcy or insolvency of the customer or
when the receivable becomes 120 days past due. The Company may
request advances against a percentage, determined by the factor, of
the qualifying accounts receivable factored at any time before
their maturity date. The factor charges a commission on the net
sales factored and interest at a negotiated rate over prime on
advances. The factor approves the credit of the Company's
customers prior to sale. If the factor disapproves a sale to a
customer and the Company decides to proceed with the sale, the
Company may factor or retain the receivable but will bear the
credit risk in either case. In addition, the Company does not
factor receivables from certain accounts at its election. The
amount of receivables for which the Company bore the credit risk
was $1.9 million at March 31, 1996 and $1.4 million at December 31,
1995. The factoring agreement can be terminated at any time by the
factor upon 180 days prior notice. Advances on accounts sold to
the factor are payable on demand. The factoring agreement includes
a letter of credit facility. All obligations under the factoring
Page 11 of 55 <PAGE>
agreement are collateralized by the Company's inventory. The
Company has entered into an agreement for an unsecured $10 million
line of credit from a bank to supplement the liquidity provided by
the factoring agreement. There were no outstanding borrowings
under the line of credit at March 31, 1996. Such credit agreement
requires the maintenance of various financial levels and ratios,
which could limit amounts available to be borrowed under the line.
By reason of the Company's treatment as an S corporation
for federal and state income tax purposes, the Company historically
has provided to its principal stockholder funds for the payment of
income taxes on the earnings of the Company. In addition, the
Company has historically paid dividends to its principal
stockholder to provide a return on investment. In connection with
its initial public offering, the Company's S corporation status was
terminated and the Company declared the final S corporation
distribution of its previously undistributed earnings. For the
three months ended March 31, 1996, the Company paid dividends,
including amounts attributable to the payment of taxes and the
final S corporation distribution of $17.2 million. For the
foreseeable future, earnings will be retained in the operations of
the business.
The Company believes that funds generated from
operations, the net proceeds of its initial public offering and
available borrowing sources will be sufficient to meet operating
needs and capital expenditures for the next 12 months.
Seasonality
-----------
The Company's business is impacted by the general
seasonal trends that are characteristic of the apparel industry.
However, due primarily to the significant growth that the Company
has experienced, quarterly sales and profit treads have not
reflected the normal apparel industry seasonality. During 1996 and
in future years, the Company expects that its sales may reflect
greater seasonal trends as its growth rate moderates and as men's
and women's sportswear become a larger percentage of apparel sales.
Impact of Recent Accounting Pronouncements
------------------------------------------
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," which will be effective
for the Company beginning January 1, 1996. SFAS No. 123 requires
expanded disclosures of stock-based compensation arrangements with
employees and encourages (but does not require) compensation cost
to be measured based on the fair value of the equity instrument
awarded. Companies are permitted, however, to continue to apply
APB Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The Company will
continue to apply APB Opinion No. 25 to its stock based
compensation awards to employees.
Page 12 of 55 <PAGE>
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of
security holders during the three month period ended March 31,
1996:
By written consent dated as of February 15, 1996, the
holder of the Company's outstanding common stock as of such date
approved the amendment to the Company's certificate of
incorporation, effecting a 13,000-for-one stock split of the
Company's common stock.
By written consent dated February 20, 1996, the holder of
the Company's outstanding common stock as of such date elected
Mossimo Giannulli as a Class I director of the Company until the
1999 annual meeting.
By written consent dated February 22, 1996, the holder of
the Company's outstanding common stock as of such date approved the
execution and delivery of S distribution notes dated February 22,
1996, in favor of Mossimo Giannulli as payment of the Company's
final S Corporation distribution.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
3.1 Certificate of Incorporation of the Company<F*>
3.2 Bylaws of the Company<F*>
10.1 Credit Agreement dated February 27, 1996 between
Mossimo, Inc. and Wells Fargo Bank, National
Association
11 Computation of Earnings per Common Share
27 Financial Data Schedule
[FN]
<F*> (Incorporated by reference from the Company's Registration
Statement on Form S-1, File Number 33-80597)
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the
three months ended March 31, 1996.
Page 13 of 55 <PAGE>
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 thereunto duly authorized.
May 10, 1996 Mossimo, Inc.
/s/ Mossimo Giannulli
--------------------------------
Mossimo Giannulli
Chairman of the Board,
Chief Executive Officer,
President (authorized officer)
May 10, 1996
/s/ Eric R. Hohl
--------------------------------
Eric R. Hohl
Chief Operating Officer, Chief
Financial Officer, Secretary
(principal financial and accounting
officer)
Page 14 of 55 <PAGE>
INDEX TO EXHIBITS
Sequential
Exhibit Page
Number Description Number
---------------------------------------------------------------
3.1 Articles of Incorporation of the
Company<F*>
3.2 Bylaws of the Company<F*>
10.1 Credit Agreement, dated February 27, 1996
between Mossimo, Inc. and Wells Fargo Bank,
National Association 16
11 Computation of Earnings per Common Share 54
27 Financial Data Schedule 55
[FN]
<F*> (Incorporated by reference from the Company's
Registration Statement on Form S-1, File
Number 33-80597)
Page 15 of 55 <PAGE>
EXHIBIT 10.1
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of February 27, 1996 by
and between MOSSIMO, INC., a Delaware corporation ("Borrower"),
and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodation
described below, and Bank has agreed to provide said credit
accommodation to Borrower on the terms and conditions contained
herein;
NOW, THEREFORE, for valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Bank and
Borrower hereby agree as follows:
ARTICLE I
THE CREDIT
SECTION 1.1. LINE OF CREDIT.
(a) LINE OF CREDIT. Subject to the terms and conditions
of this Agreement, Bank hereby agrees to make advances to
Borrower from time to time up to and including April 1, 1997,
not to exceed at any time the aggregate principal amount of Ten
Million Dollars ($10,000,000.00) ("Line of Credit"), the
proceeds of which shall be used for Borrower's general
corporate purposes. Borrower's obligation to repay advances
under the Line of Credit shall be evidenced by a promissory
note substantially in the form of Exhibit A attached hereto
-1-
Page 16 of 55 <PAGE>
("Line of Credit Note"), all terms of which are incorporated
herein by this reference.
(b) LETTER OF CREDIT SUBFEATURE. As a subfeature under
the Line of Credit, Bank agrees from time to time during the
term thereof to issue standby and sight commercial letters of
credit for the account of Borrower for general corporate
purposes (each, a "Letter of Credit" and collectively, "Letters
of Credit"); provided however, that the form and substance of
each Letter of Credit shall be subject to approval by Bank, in
its sole discretion; and provided further, that the aggregate
undrawn amount of all outstanding Letters of Credit shall not
at any time exceed Ten Million Dollars ($10,000,000.00). Each
commercial Letter of Credit shall be issued for a term not to
exceed one hundred eighty (180) days, as designated by
Borrower; each standby Letter of Credit shall be issued for a
term not to exceed three hundred sixty-five (365) days, as
designated by Borrower; provided however, that no Letter of
Credit shall have an expiration date subsequent to October 1,
1997. The undrawn amount of all Letters of Credit shall be
reserved under the Line of Credit and shall not be available
for borrowings thereunder. Each Letter of Credit shall be
subject to the additional terms and conditions of the Letter of
Credit Agreement and related documents, if any, required by
Bank in connection with the issuance thereof (each, a "Letter
of Credit Agreement" and collectively, "Letter of Credit
Agreements"). Each draft paid by Bank under a Letter of Credit
-2-
Page 17 of 55 <PAGE>
shall be deemed an advance under the Line of Credit and shall
be repaid by Borrower in accordance with the terms and
conditions of this Agreement applicable to such advances;
provided however, that if advances under the Line of Credit are
not available, for any reason whatsoever, at the time any draft
is paid by Bank, then the full amount of such draft shall be
immediately due and payable, together with interest thereon,
from the date such amount is paid by Bank to the date such
amount is fully repaid by Borrower, at the rate of interest
applicable to advances under the Line of Credit. In such event
Borrower agrees that Bank, at Bank's sole discretion, may debit
any demand deposit account maintained by Borrower with Bank for
the amount of any such draft.
(c) BORROWING AND REPAYMENT. Borrower may from time to
time during the term of the Line of Credit borrow, partially or
wholly repay its outstanding borrowings, and reborrow, subject
to all of the limitations, terms and conditions contained
herein or in the Line of Credit Note; provided however, that
the total outstanding borrowings under the Line of Credit shall
not at any time exceed the maximum principal amount available
thereunder, as set forth above.
SECTION 1.2. INTEREST/FEES.
(a) INTEREST. The outstanding principal balance of the
Line of Credit shall bear interest at the rate of interest set
forth in the Line of Credit Note.
-3-
Page 18 of 55 <PAGE>
(b) COMPUTATION AND PAYMENT. Interest shall be computed
on the basis of a 360-day year, actual days elapsed. Interest
shall be payable at the times and place set forth in the Line
of Credit Note.
(c) COMMITMENT FEE. In addition to the $10,000 non-
refundable commitment fee which was paid by Borrower to Bank at
the time Borrower accepted Bank's commitment letter for the
Line of Credit, Borrower shall pay to Bank a non-refundable
commitment fee for the Line of Credit equal to $40,000.00,
which additional fee shall be due and payable at the time this
Agreement is executed by Borrower and delivered to Bank.
(d) UNUSED COMMITMENT FEE. Borrower shall pay to Bank an
unused facility fee equal to one-quarter percent (0.25%) per
annum (computed on the basis of a 360-day year, actual days
elapsed) on the average daily unused amount of the Line of
Credit, which fee shall be calculated on a quarterly basis by
Bank and shall be due and payable by Borrower in arrears on the
last day of each quarter.
(e) COMMERCIAL LETTER OF CREDIT FEES. Borrower shall pay
to Bank fees upon the issuance of each commercial Letter of
Credit, upon the payment or negotiation by Bank of each draft
under any commercial Letter of Credit and upon the occurrence
of any other activity with respect to any commercial Letter of
Credit (including without limitation, the transfer, amendment
or cancellation of any commercial Letter of Credit) determined
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in accordance with Bank's standard fees and charges then in
effect for such activity.
(f) STANDBY LETTER OF CREDIT FEES. Borrower shall pay to
Bank (i) fees upon the issuance of each Standby Letter of
Credit equal to one and one-half percent (1.50%) per annum
(computed on the basis of a 360-day year, actual days elapsed)
of the face amount thereof, and (ii) fees upon the payment or
negotiation by Bank of each draft under any standby Letter of
Credit and upon the occurrence of any other activity with
respect to any standby Letter of Credit (including without
limitation, the transfer, amendment or cancellation of any
standby Letter of Credit) determined in accordance with Bank's
standard fees and charges then in effect for such activity.
SECTION 1.3. COLLECTION OF PAYMENTS. Borrower
authorizes Bank to collect all interest and fees due under the
Line of Credit by charging Borrower's demand deposit account
number 4600209340 with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand
deposit account to pay all such sums when due, the full amount
of such deficiency shall be immediately due and payable by
Borrower.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and
warranties to Bank, which representations and warranties shall
survive the execution of this Agreement and shall continue in
full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to
Bank subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation,
duly organized and existing and in good standing under the laws
of the State of Delaware, and is qualified or licensed to do
business (and is in good standing as a foreign corporation, if
applicable) in all jurisdictions in which the failure to so
qualify or to be so licensed could have a material adverse
effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This
Agreement, the Line of Credit Note, and each other document,
contract and instrument required hereby or at any time
hereafter delivered to Bank in connection herewith
(collectively, the "Loan Documents") have been duly authorized,
and upon their execution and delivery in accordance with the
provisions hereof will constitute legal, valid and binding
agreements and obligations of Borrower or the party which
executes the same, enforceable in accordance with their
respective terms, except as the enforceability thereof may be
affected by bankruptcy, insolvency or similar laws affecting
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the enforcement of creditors' rights generally, and except as
the availability of certain equitable remedies may be limited
by certain equitable principles of general applicability.
SECTION 2.3. NO VIOLATION. The execution, delivery and
performance by Borrower of each of the Loan Documents do not
violate any provision of any law or regulation, or contravene
any provision of the Articles of Incorporation or By-Laws of
Borrower or result in any breach of or default under any
contract, obligation, indenture or other instrument to which
Borrower is a party or by which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to
the best of Borrower's knowledge threatened, actions, claims,
investigations, suits or proceedings by or before any
governmental authority, arbitrator, court or administrative
agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those
disclosed by Borrower to Bank in writing prior to the date
hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The
financial statement of Borrower dated September 30, 1995, a
true copy of which has been delivered by Borrower to Bank prior
to the date hereof, (a) is complete and correct and presents
fairly the financial condition of Borrower for the date and
periods set forth therein, (b) discloses all liabilities of
Borrower for the date and periods set forth therein that are
required to be reflected or reserved against under generally
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accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in
accordance with generally accepted accounting principles
consistently applied. Since the date of such financial
statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged,
pledged, granted a security interest in or otherwise encumbered
any of its assets or properties except in favor of Bank, in
favor of Borrower's factor or as otherwise permitted by Bank in
writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no
knowledge of any material pending assessments or adjustments of
its income tax payable with respect to any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement,
indenture, contract or instrument to which Borrower is a party
or by which Borrower may be bound that requires the
subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation
of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses,
and will hereafter possess, all permits, franchises and
licenses required and rights to all trademarks, trade names,
patents, and fictitious names, if any, necessary to enable it
to conduct the business in which it is now engaged in
compliance with applicable law, except where Borrower's failure
to possess any such permit, franchise, license or right would
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not have a material adverse effect on the financial condition
or operation of Borrower.
SECTION 2.9. ERISA. Borrower is in compliance in all
material respects with all applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended or
recodified from time to time ("ERISA"); Borrower has not
violated any material provision of any defined employee pension
benefit plan (as defined in ERISA) maintained or contributed to
by Borrower (each, a "Plan"); no Reportable Event as defined in
ERISA has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each
Plan will be able to fulfill its benefit obligations as they
come due in accordance with the Plan documents and under
generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in
default on any obligation for borrowed money, any material
purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed
by Borrower to Bank in writing prior to the date hereof,
Borrower is in compliance in all material respects with all
applicable Federal or state environmental, hazardous waste,
health and safety statutes, and any rules or regulations
adopted pursuant thereto, which govern or affect any of
Borrower's operations and/or properties, including without
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limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal
Resource Conservation and Recovery Act of 1976, the Federal
Toxic Substances Control Act and the California Health and
Safety Code, as any of the same may be amended, modified or
supplemented from time to time. None of the operations of
Borrower is the subject of any Federal or state investigation
evaluating whether any remedial action involving a material
expenditure is needed to respond to a release of any toxic or
hazardous waste or substance into the environment. Borrower
has no material contingent liability in connection with any
release of any toxic or hazardous waste or substance into the
environment.
SECTION 2.12. INDEBTEDNESS FOR BORROWING. As of the date
of this Agreement, Borrower is not indebted to any person or
entity on account of borrowed money, except for borrowings from
its factor.
SECTION 2.12. FACTOR. As of the date of this Agreement,
Borrower's only factoring relationship is with THE CIT
GROUP/COMMERCIAL SERVICES, INC. Borrower has heretofore
delivered to Bank a copy of its factoring agreement with the
aforesaid factor which is in effect as of the date of this
Agreement.
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ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT.
The obligation of Bank to commence extending credit under this
Agreement is subject to the fulfillment to Bank's satisfaction
of all of the following conditions:
(a) APPROVAL OF BANK COUNSEL. All legal matters
incidental to the extension of credit by Bank shall be
satisfactory to Bank's counsel.
(b) DOCUMENTATION. Bank shall have received, in form and
substance satisfactory to Bank, each of the following, duly
executed:
(i) This Agreement and the Line of Credit Note.
(ii) Corporate Borrowing Resolution.
(iii) Certificate of Incumbency.
(iv) Articles of Incorporation.
(v) Continuing Standby and Commercial L/C
Agreement.
(vi) Facsimile Agreement.
(vii) Such other documents as Bank may require
under any other Section of this Agreement.
(c) INSURANCE. Borrower shall have delivered to Bank
evidence of insurance coverage on all Borrower's property, in
form, substance, amounts, covering risks and issued by
companies satisfactory to Bank.
(d) INITIAL PUBLIC OFFERING. Borrower shall have
completed an initial public offering of its stock as heretofore
described to Bank ("IPO"), with net proceeds of the IPO to
Borrower in the minimum amount of TWENTY-FIVE MILLION DOLLARS
($25,000,000.00).
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SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The
obligation of Bank to make each extension of credit requested
by Borrower hereunder shall be subject to the fulfillment to
Bank's satisfaction of each of the following conditions:
(a) COMPLIANCE. The representations and warranties
contained herein and in each of the other Loan Documents shall
be true on and as of the date of the signing of this Agreement
and on the date of each extension of credit by Bank pursuant
hereto, with the same effect as though such representations and
warranties had been made on and as of each such date (except to
the extent any such representation or warranty specifically
relates to an earlier date, in which case it shall be true as
of such earlier date), and on each such date, no Event of
Default as defined herein, and no condition, event or act which
with the giving of notice or the passage of time or both would
constitute such an Event of Default, shall have occurred and be
continuing or shall exist.
(b) DOCUMENTATION. Bank shall have received all
additional documents to which Bank may be entitled under this
Agreement.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed
to extend credit to Borrower pursuant hereto, or any
liabilities (whether direct or contingent, liquidated or
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unliquidated) of Borrower to Bank under any of the Loan
Documents remain outstanding, and until payment in full of all
obligations of Borrower subject hereto, Borrower shall, unless
Bank otherwise consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all
principal, interest, fees or other liabilities due under any of
the Loan Documents at the times and place and in the manner
specified therein.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate
books and records in accordance with generally accepted
accounting principles consistently applied, and permit any
representative of Bank, at any reasonable time (but not so as
to unreasonably interfere with Borrower's business), to
inspect, audit and examine such books and records, to make
copies of the same, and to inspect the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all
of the following, in form and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of
each fiscal year, an audited financial statement of Borrower,
prepared by an independent certified public accountant, to
include balance sheet, income statement, statement of cash
flows, with all supporting footnotes and schedules, and within
30 days after filing, copies of Borrower's annual 10-K reports
for such year;
(b) not later than 60 days after and as of the end of
each fiscal quarter, a financial statement of Borrower,
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prepared by Borrower, to include balance sheet and income
statement and within 30 days after filing, copies of Borrower's
quarterly 10-Q reports;
(c) contemporaneously with each annual and quarterly
financial statement of Borrower required hereby, a certificate
of the president or chief financial officer of Borrower that
said financial statements fairly present the financial
condition of Borrower in all material respects and that there
exists no Event of Default nor any condition, act or event
which with the giving of notice or the passage of time or both
would constitute an Event of Default;
(d) from time to time such other information as Bank may
reasonably request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all
licenses, permits, governmental approvals, rights, privileges
and franchises reasonably necessary for the conduct of its
business; and comply in all material respects with the
provisions of all documents pursuant to which Borrower is
organized and/or which govern Borrower's continued existence
and with the requirements of all laws, rules, regulations and
orders of any governmental authority applicable to Borrower
and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force
insurance of the types and in amounts customarily carried in
lines of business similar to that of Borrower, including but
not limited to fire, extended coverage, public liability,
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flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory
Bank, and deliver to Bank from time to time at Bank's request
schedules setting forth all insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or
necessary to Borrower's business in good repair and condition,
and from time to time make necessary repairs, renewals and
replacements thereto so that such properties shall be fully and
efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and
discharge when due any and all indebtedness, obligations,
assessments and taxes, both real or personal, including without
limitation Federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may
in good faith contest or as to which a bona fide dispute may
arise, and (b) for which Borrower has made provision, to Bank's
reasonable satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.
SECTION 4.8. LITIGATION. Give notice in writing to Bank
of any litigation pending or threatened against Borrower with a
claim in excess of $500,000.00, promptly after Borrower learns
of such litigation.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's
financial condition as follows using generally accepted
accounting principles consistently applied and used
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consistently with prior practices, except to the extent
modified by the following definitions:
(a) Current Ratio not at any time less than 2.50 to 1.0,
with "Current Ratio" defined as total current assets divided by
total current liabilities. For the purposes of this
calculation, "current assets" shall include the amount due from
Borrower's factor without offset for any advances due to the
factor, and "current liabilities" shall include the amount due
to the factor for advances without offset for any amounts due
Borrower from the factor.
(b) Tangible Net Worth not at any time less than
$25,000,000.00, plus twenty-five percent (25%) of Borrower's
year-to-date net income (at the time of each such calculation),
with "Tangible Net Worth" defined as the aggregate of total
stockholders' equity plus subordinated debt less any intangible
assets.
(c) Total Liabilities divided by Tangible Net Worth not
at an time greater than 0.75 to 1.0, with "Total Liabilities"
defined as the aggregate of current liabilities and non-
current liabilities less subordinated debt, and with "Tangible
Net Worth" as defined above. For the purposes of this
calculation, "liabilities" shall include the amount due to the
factor for advances without offset for any amounts due Borrower
from the factor.
(d) Quick Ratio not at any time less than 1.00 to 1.0,
with "Quick Ratio" defined as the aggregate of unrestricted
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cash, unrestricted marketable securities and receivables
convertible into cash, to include the amount due from
Borrower's factor without offset for any advances due to the
factor, divided by total current liabilities. For the purposes
of this calculation, "current liabilities" shall include the
amount due to the factor for advances without offset for any
amounts due Borrower from the factor.
(e) Net income after taxes not less than $4,000,000.00 on
an annual basis, determined as of each fiscal year end, and not
less than $2,000,000.00 on a year-to-date basis, determined as
of the end of the second fiscal quarter of each fiscal year.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event
more than ten (10) days after the occurrence of each such event
or matter) give written notice to Bank in reasonable detail of:
(a) the occurrence of any Event of Default, or any condition,
event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any
change in the name of Borrower; (c) the occurrence and nature
of any Reportable Event or Prohibited Transaction, each as
defined in ERISA, or any funding deficiency with respect to any
Plan; (d) any termination or cancellation of any insurance
policy which Borrower is required to maintain, or any uninsured
or partially uninsured loss through liability or property
damage, or through fire, theft or any other cause affecting
Borrower's property in excess of an aggregate of $500,000.00;
(e) the establishment by Borrower of any new factoring
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relationship; (f) any amendment or restatement of, default
under or termination of any factoring agreement to which
Borrower is a party; or (g) any time Borrower's outstanding
borrowings from its factor exceed TEN MILLION DOLLARS
($10,000,000.00) in the aggregate.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains
committed to extend credit to Borrower pursuant hereto, or any
liabilities (whether direct or contingent, liquidated or
unliquidated) of Borrower to Bank under any of the Loan
Documents remain outstanding, and until payment in full of all
obligations of Borrower subject hereto, Borrower will not
without Bank's prior written consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of
any credit extended hereunder except for the purposes stated in
Article I hereof.
SECTION 5.2. CAPITAL EXPENDITURES. Make any additional
investment in fixed assets in any fiscal year in excess of an
aggregate of $5,500,000.00.
SECTION 5.3. OTHER INDEBTEDNESS. Create, incur, assume
or permit to exist any indebtedness or liabilities resulting
from borrowings, whether secured or unsecured, matured or
unmatured, liquidated or unliquidated, joint or several, except
for (a) the liabilities of Borrower to Bank, (b) any other
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liabilities of Borrower existing as of, and disclosed by
Borrower to Bank in writing prior to, the date hereof,
(c) borrowings hereafter from Borrower's factor, and (d) the
indebtedness evidenced by the S Corporation Notes as defined in
Section 5.7 below.
SECTION 5.4. MERGER, CONSOLIDATION, TRANSFER OF ASSETS.
Merge into or consolidate with any other entity; make any
substantial change in the nature of Borrower's business as
conducted as of the date hereof (adding complementary product
lines shall not be deemed a change in the nature of Borrower's
business); acquire all or substantially all of the assets of
any other entity; nor sell, lease, transfer or otherwise
dispose of all or a substantial or material portion of
Borrower's assets except in the ordinary course of its
business.
SECTION 5.5. GUARANTIES. Guarantee or become liable in
any way as surety, endorser (other than as endorser of
negotiable instruments for deposit or collection in the
ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower
as security for, any liabilities or obligations of any other
person or entity, except for (a) any of the foregoing in favor
of Bank, and (b) any of the foregoing in favor of persons or
entities other Bank which do not exceed ONE HUNDRED THOUSAND
DOLLARS ($100,000.00) in the aggregate at any time for all of
the foregoing combined.
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SECTION 5.6. LOANS, ADVANCES, INVESTMENTS. Make any
loans or advances to or investments in any person or entity,
except for loans, advances and investments which do not exceed
TWO HUNDRED THOUSAND DOLLARS ($200,000.00) in the aggregate at
any time for all such loans, advances and investments combined.
SECTION 5.7. DIVIDENDS, DISTRIBUTIONS. Declare or pay
any dividend or distribution either in cash, stock or any other
property on Borrower's stock now or hereafter outstanding, nor
redeem, retire, repurchase or otherwise acquire any shares of
any class of Borrower's stock now or hereafter outstanding;
provided, however, that nothing in this Section 5.7 shall
prohibit Borrower from (a) declaring prior to the closing of
the IPO a final S corporation distribution in an amount equal
to all of its and its predecessors' previously earned and
undistributed taxable S corporation earnings through the date
of termination of Borrower's S corporation status, (b) paying
such distribution prior to the closing of the IPO in the form
of a note or notes (collectively, "S Corporation Notes"), and
(c) repaying the S Corporation Notes with a portion of the net
proceeds of the IPO.
SECTION 5.8. PLEDGE OF ASSETS. Mortgage, pledge, grant
or permit to exist a security interest in, or lien upon, all or
any portion of Borrower's assets now owned or hereafter
acquired, except for (a) any, of the foregoing in favor of
Bank, (b) any of the foregoing which is existing as of, and
disclosed by Borrower to Bank in writing prior to, the date
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hereof; and (c) any security interests granted Borrower's
factor in Borrower's accounts receivable, chattel paper,
contract rights, instruments, documents, general intangibles,
rights of Borrower as an unpaid seller of inventory, returned
or repossessed inventory, reserves and credit balances arising
under the factoring agreement, and insurance pertaining to any
of the foregoing.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following
shall constitute an "Event of Default" under this Agreement:
(a) Borrower shall fail to pay within three (3) Business
Days (as defined in the Line of Credit Note) of the date when
due any principal, interest, fees or other amounts payable
under any of the Loan Documents.
(b) Any financial statement or certificate furnished to
Bank in connection with, or any representation or warranty made
by Borrower or any other party under this Agreement or any
other Loan Document shall prove to be incorrect, false or
misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with
any obligation, agreement or other provision contained herein
or in any other Loan Document (other than those referred to in
subsections (a) and (b) above), and with respect to any such
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default which by its nature can be cured, such default shall
continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any
obligation, or any defined event of default, under the terms of
any contract or instrument (other than any of the Loan
Documents) pursuant to which Borrower has incurred any debt or
other liability to any person or entity, including Bank;
provided, however, that in the case of a default or defined
event of default under the terms of indebtedness to a person or
entity other than Bank, any cure period applicable thereto has
expired and such indebtedness is in excess of $500,000.00,
individually or in the aggregate for all such defaults by
Borrower combined.
(e) The filing of a notice of judgment lien against
Borrower; or the recording of any abstract of judgment against
Borrower in any county in which Borrower has an interest in
real property; or the service of a notice of levy and/or of a
writ of attachment or execution, or other like process, against
the assets of Borrower; or the entry of a judgment against
Borrower; provided, however, that such judgments, liens,
levies, writs, executions and other process involve debts of or
claims against Borrower in excess of $500,000.00, individually
or in the aggregate for all such judgments, liens, levies,
writs, executions and other process against Borrower combined,
and within twenty (20) days after the creation thereof, or at
least ten (10) days prior to the date on which any assets could
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be lawfully sold in satisfaction thereof, such debt or claim is
not satisfied or stayed pending appeal and insured against in a
manner satisfactory to Bank.
(f) Borrower shall become insolvent, or shall suffer or
consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or
shall generally fail to pay its debts as they become due, or
shall make a general assignment for the benefit of creditors;
Borrower shall file a voluntary petition in bankruptcy, or
seeking reorganization, in order to effect a plan or other
arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time ("Bankruptcy Code"), or
under any state or Federal law granting relief to debtors,
whether now or hereafter in effect; or any involuntary petition
or proceeding pursuant to the Bankruptcy Code or any other
applicable state or Federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or
commenced against Borrower, and such involuntary petition or
proceeding unopposed or is not dismissed within sixty (60) days
of its commencement, or Borrower shall file an answer admitting
the jurisdiction of the court and the material allegations of
any involuntary petition; or Borrower shall be adjudicated a
bankrupt, or an order for relief shall be entered against
Borrower by any court of competent jurisdiction under the
Bankruptcy Code or any other applicable state or Federal law
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relating to bankruptcy, reorganization or other relief for
debtors.
(g) The death or incapacity of Mossimo Giannulli; or
Mossimo Giannulli ceases to be active in the senior management
of Borrower as its chief executive officer; provided, however,
that in the event of such death, incapacity or failure of
Mossimo Giannulli to be active in the senior management of
Borrower (a "Paragraph (g) Event"), Bank may immediately cease
extending credit to Borrower hereunder, but shall not be
entitled as a result of the Paragraph (g) Event to accelerate
the outstanding indebtedness of Borrower to Bank hereunder for
ninety (90) days thereafter; provided further, however, that in
the case of Mossimo Giannulli's death, if prior to the
Paragraph (g) Event arising therefrom, Borrower has furnished
Bank with an assignment of key man life insurance insuring the
life of Giannulli Mossimo, in form and substance satisfactory
to Bank, in a minimum amount of $10,000,000.00, together with
an agreement that the proceeds of such policy shall be used to
secure Borrower's obligations to Bank hereunder until such
obligations are repaid in accordance herewith, then the
occurrence of the Paragraph (g) Event arising from such death
shall not constitute an Event of Default hereunder.
(h) The dissolution or liquidation of Borrower; or
Borrower, or any of its directors, stockholders or members,
shall take action seeking to effect the dissolution or
liquidation of Borrower.
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SECTION 6.2. REMEDIES. Upon the occurrence of any Event
of Default: (a) all indebtedness of Borrower under each of the
Loan Documents, any term thereof to the contrary notwith-
standing, shall at Bank's option and without notice become
immediately due and payable without presentment, demand,
protest or notice of dishonor, all of which are hereby
expressly waived by Borrower; (b) the obligation, if any, of
Bank to extend any further credit under any of the Loan
Documents shall immediately cease and terminate; and (c) Bank
shall have all rights, powers and remedies available under each
of the Loan Documents, or accorded by law, including without
limitation the right to resort to any or all security for any
credit accommodation from Bank subject hereto and to exercise
any or all of the rights of a beneficiary or secured party
pursuant to applicable law. Ail rights, powers and remedies of
Bank may be exercised at any time by Bank and from time to time
after the occurrence of an Event of Default, are cumulative and
not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or
discontinuance of Bank in exercising any right, power or remedy
under any of the Loan Documents shall affect or operate as a
waiver of such right, power or remedy; nor shall any single or
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Page 40 of 55 <PAGE>
partial exercise of any such right, power or remedy preclude,
waive or otherwise affect any other or further exercise thereof
or the exercise of any other right, power or remedy. Any
waiver, permit, consent or approval of any kind by Bank of any
breach of or default under any of the Loan Documents must be in
writing and shall be effective only to the extent set forth in
such writing.
SECTION 7.2. NOTICES. All notices, requests and demands
which any party is required or may desire to give to any other
party under any provision of this Agreement must be in writing
delivered to each party at the following address:
BORROWER: MOSSIMO, INC.
Attention: Eric Hohl, CFO
5320 Barranca Parkway
Irvine, CA 92718
Telecopy: (714) 453-0101
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
Attention: Los Angeles RCBO
333 S. Grand Avenue, 3rd Floor
Los Angeles, CA 90071
Telecopy: (213) 687-3501
or to such other address as any party may designate by written
notice to all other parties. Each such notice, request and
demand shall be deemed given or made as follows: (a) if sent
by hand delivery, upon delivery; (b) if sent by mail, upon the
earlier of the date of receipt or three (3) days after deposit
in the U.S. mail, first class and postage prepaid; and (c) if
sent by telecopy, upon receipt.
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Page 41 of 55 <PAGE>
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES.
Borrower shall pay to Bank immediately upon demand the full
amount of all reasonable payments, advances, charges, costs and
expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Bank's in-house
counsel), incurred by Bank in connection with (a) the
negotiation and preparation of this Agreement and the other
Loan Documents, and the preparation of any amendments and
waivers hereto and thereto, (b) the enforcement of Bank's
rights and/or the collection of any amounts which become due to
Bank under any of the Loan Documents, and (c) the prosecution
or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for
declaratory relief, and including any of the foregoing incurred
in connection with any bankruptcy proceeding relating to
Borrower.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement
shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors
and assigns of the parties; provided however, that Borrower may
not assign or transfer its interest hereunder without Bank's
prior written consent. Bank reserves the right to sell,
assign, transfer, negotiate or grant participations in all or
any part of, or any interest in, Bank's rights and benefits
under each of the Loan Documents. In connection therewith,
Bank may disclose all documents and information which Bank now
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Page 42 of 55 <PAGE>
has or may hereafter acquire relating to any credit extended by
Bank to Borrower, Borrower or its business, or any collateral
required hereunder; provided, however, that any such disclosure
of confidential information shall be subject to a written
confidentiality agreement with the purchaser or assignee upon
which Borrower shall be permitted to rely and which shall be
reasonably satisfactory to Borrower. Notwithstanding the
foregoing, in the event of a sale by Bank of a participating
interest hereunder, Bank's obligations under this Agreement to
Borrower shall remain unchanged, Bank shall remain solely
responsible for the performance thereof and Borrower may
continue to deal solely and directly with Bank in connection
with Bank's rights and obligations under this Agreement.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This
Agreement and the other Loan Documents constitute the entire
agreement between Borrower and Bank with respect to any
extension of credit by Bank subject hereto and supersede all
prior negotiations, communications, discussions and
correspondence concerning the subject matter hereof. This
Agreement may be amended or modified only by a written
instrument executed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This
Agreement is made and entered into for the sole protection and
benefit of the parties hereto and their respective permitted
successors and assigns, and no other person or entity shall be
a third party beneficiary of, or have any direct or indirect
-28-
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cause of action or claim in connection with, this Agreement or
any other of the Loan Documents to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and
every provision of this Agreement and each other of the Loan
Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any
provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective only
to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining
provisions of this Agreement.
SECTION 7.9. GOVERNING LAW. This Agreement shall be
governed by and construed in accordance with the laws of the
State of California, except to the extent Bank has greater
rights or remedies under Federal law, whether as a national
bank or otherwise, in which case such choice of California law
shall not be deemed to deprive Bank of any such rights and
remedies as may be available under Federal law.
-29-
Page 44 of 55 <PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first written
above.
WELLS FARGO BANK,
MOSSIMO, INC. NATIONAL ASSOCIATION
By: /s/ Mossimo Giannulli By: /s/ John A. Strauss
--------------------------- -----------------------
Title: Chief Executive Officer John A. Strauss
------------------------ Vice President
By: /s/ Eric R. Hohl
---------------------------
Title: Chief Financial Officer
------------------------
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Page 45 of 55 <PAGE>
EXHIBIT A
REVOLVING LINE OF CREDIT NOTE
$10,000,000.00 Los Angeles, California
February 27, 1996
FOR VALUE RECEIVED, the undersigned MOSSIMO, INC.
("Borrower") promises to pay to the order of WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank") at its office at Los Angeles
RCBO, 333 S. Grand Avenue, 3rd Floor, Los Angeles, California,
or at such other place as the holder hereof may designate, in
lawful money of the United States of America and in immediately
available funds, the principal sum of Ten Million Dollars
($10,000,000.00), or so much thereof as may be advanced and be
outstanding, with interest thereon, to be computed on each
advance from the date of its disbursement (computed on the
basis of a 360-day year, actual days elapsed) either (i) at a
fluctuating rate per annum equal to the Prime Rate in effect
from time to time, or (ii) at a fixed rate per annum determined
by Bank to be two and one-quarter percent (2.25%) above Bank's
LIBOR in effect on the first day of the applicable Fixed Rate
Term. When interest is determined in relation to the Prime
Rate, each change in the rate of interest hereunder shall
become effective on the date each Prime Rate change is
announced within Bank. With respect to each LIBOR option
selected hereunder, Bank is hereby authorized to note the date,
principal amount, interest rate and Fixed Rate Term applicable
thereto and any payments made thereon on Bank's books and
records (either manually or by electronic entry) and/or on any
schedule attached to this Note, which notations shall be prima
facie evidence of the accuracy of the information noted.
A. DEFINITIONS:
As used herein, the following terms shall have the
meanings set forth after each:
1. "Business Day" means any day except a Saturday,
Sunday or any other day, designated as a holiday under Federal
or California statute or regulation.
2. "Fixed Rate Term" means a period commencing on a
Business Day and continuing for thirty (30) or sixty (60) days,
as designated by Borrower, during which all or a portion of the
outstanding principal balance of this Note bears interest
determined in relation to Bank's LIBOR; provided however, that
no Fixed Rate Term may be selected for a principal amount less
than Five Hundred Thousand Dollars ($500,000.00); and provided
further, that no Fixed Rate Term shall extend beyond the
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Page 46 of 55 <PAGE>
scheduled maturity date hereof. If any Fixed Rate Term would
end on a day which is not a Business Day, then such Fixed Rate
Term shall be extended to the next succeeding Business Day.
3. "LIBOR" means the rate per annum (rounded upward, if
necessary, to the nearest whole 1/8 of 1%) and determined
pursuant to the following formula:
Base LIBOR
LIBOR = -------------------------------
100% - LIBOR Reserve Percentage
(a) "Base LIBOR" means the rate per annum for United
States dollar deposits quoted by Bank as the Inter-Bank Market
Offered Rate, with the understanding that such rate is quoted
by Bank for the purpose of calculating effective rates of
interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a
period of time approximately equal to the number of days in
such Fixed Rate Term and in an amount approximately equal to
the principal amount which such Fixed Rate Term applies.
Borrower understands and agrees that Bank may base its
quotation of the Inter-Bank Market Offered Rate upon such
offers or other market indicators of the Inter-Bank Market as
Bank in its discretion deems appropriate including, but not
limited to, the rate offered for U.S. dollar deposits on the
London Inter-Bank Market.
(b) "LIBOR Reserve Percentage" means the reserve
percentage prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for "Eurocurrency
Liabilities" (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Bank for expected changes in
such reserve percentage during the applicable Fixed Rate Term.
4. "Prime Rate" means at any time the rate of interest
most recently announced within Bank at its principal office in
San Francisco as its Prime Rate, with the understanding that
the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for
those loans making reference thereto, and is evidenced by the
recording thereof after its announcement in such internal
publication or publications as Bank may designate.
B. INTEREST:
1. PAYMENT OF INTEREST. Interest accrued on this Note
shall be payable on the first day of each month, commencing
April, 1996; provided however that interest at a fixed rate
determined in relation to Bank's LIBOR shall be payable at the
end of the Fixed Rate Term applicable thereto.
-2-
Page 47 of 55 <PAGE>
2. SELECTION OF INTEREST RATE OPTIONS. At any time any
portion of this Note bears interest determined in relation to
Bank's LIBOR, it may be continued by Borrower at the end of the
Fixed Rate Term applicable thereto so that all or a portion
thereof bears interest determined in relation to the Prime Rate
or in relation to Bank's LIBOR for a new Fixed Rate Term
designated by Borrower. At any time any portion of this Note
bears interest determined in relation to the Prime Rate,
Borrower may convert all or a portion thereof so that it bears
interest determined in relation to Bank's LIBOR for a Fixed
Rate Term designated by Borrower. At the time each advance is
requested hereunder or Borrower wishes to select the LIBOR
option for all or a portion of the outstanding principal
balance hereof, and at the end of each Fixed Rate Term,
Borrower shall give Bank notice specifying (a) the interest
rate option selected by Borrower, (b) the principal amount
subject thereto, and (c) if the LIBOR option is selected, the
length of the applicable Fixed Rate Term. Any such notice may
be given by telephone so long as, with respect to each LIBOR
selection, (i) Bank receives written confirmation from Borrower
not later than three (3) Business Days after such telephone
notice is given, and (ii) such notice is given to Bank prior to
10:00 a.m., California time, on the first day of the Fixed Rate
Term. For each LIBOR option requested hereunder, Bank will
quote the applicable fixed rate to Borrower at approximately
10:00 a.m., California time, on the first day of the Fixed Rate
Term. If Borrower does not immediately accept the rate quoted
by Bank, any subsequent acceptance by Borrower shall be subject
to a redetermination by Bank of the applicable fixed rate;
provided however, that if Borrower fails to accept any such
rate by 11:00 a.m., California time, on the Business Day such
quotation is given, then the quoted rate shall expire and Bank
shall have no obligation to permit a LIBOR option to be
selected on such day. If no specific designation of interest
is made at the time any advance is requested hereunder or at
the end of any Fixed Rate Term, Borrower shall be deemed to
have made a Prime Rate interest selection for such advance or
the principal amount to which such Fixed Rate Term applied.
3. ADDITIONAL LIBOR PROVISIONS.
(a) If Bank at any time shall determine that for any
reason adequate and reasonable means do not exist for
ascertaining Bank's LIBOR, then Bank shall promptly give notice
thereof to Borrower. If such notice is given and until such
notice has been withdrawn by Bank, than (i) no new LIBOR option
may be selected by Borrower, and, (ii) any portion of the
outstanding principal balance hereof which bears interest
determined in relation to Bank's LIBOR, subsequent to the end
of the Fixed Rate Term applicable thereto, shall bear interest
determined in relation to the Prime Rate.
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Page 48 of 55 <PAGE>
(b) If any law, treaty, rule, regulation or determination
of a court or governmental authority or any change therein or
in the interpretation or application thereof (each, a "Change
in Law") shall make it unlawful for Bank (i) to make LIBOR
options available hereunder, or (ii) to maintain interest rates
based on Bank's LIBOR, then in the former event, any obligation
of Bank to make available such unlawful LIBOR options shall
immediately be cancelled, and in the latter event, any such
unlawful LIBOR-based interest rates then outstanding shall be
converted, at Bank's option, so that interest on the portion of
the outstanding principal balance subject thereto is determined
in relation to the Prime Rate; provided however, that if any
such Change in Law shall permit any LIBOR-based interest rates
to remain in effect until the expiration of the Fixed Rate Term
applicable thereto, then such Permitted LIBOR-based interest
rates shall continue in effect until the expiration of such
Fixed Rate Term. Upon occurrence of any of the foregoing
events, Borrower shall pay to Bank immediately upon demand such
amounts as may be necessary to compensate Bank for any fines,
fees, charges, penalties or other costs incurred or payable by
Bank as a result thereof and which are attributable to any
LIBOR options made available to Borrower hereunder, and any
reasonable allocation made by Bank among its operations shall
be conclusive and binding upon Borrower.
(c) If any Change in Law or compliance by Bank with any
request or directive (whether or not having the force of law)
from any central bank or other governmental authority shall:
(i) subject Bank to any tax, duty or other charge with
respect to any LIBOR options, or change the basis of
taxation of payments to Bank of principal, interest,
fees or any other amount payable hereunder (except
for changes in the rate of tax on the overall net
income of Bank); or
(ii) impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar
requirement against assets held by, deposits or other
liabilities in or for the account of, advances or
loans by, or any other acquisition of funds by any
office of Bank; or
(iii) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost
to Bank of making, renewing or maintaining any LIBOR options
hereunder and/or to reduce any amount receivable by Bank in
connection therewith, then in any such case, Borrower shall pay
to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred
by Bank and/or reductions in amounts received by Bank which are
-4-
Page 49 of 55 <PAGE>
attributable to such LIBOR options. In determining which costs
incurred by Bank and/or reductions in amounts received by Bank
are attributable to any LIBOR options made available to
Borrower hereunder, any reasonable allocation made by Bank
among its operations shall be conclusive and binding upon
Borrower.
4. DEFAULT INTEREST. From and after the maturity date
of this Note, or such earlier date as all principal owing
hereunder becomes due and payable by acceleration or otherwise,
the outstanding principal balance of this Note shall bear
interest until paid in full at an increased rate per annum
(computed on the basis of a 360-day year, actual days elapsed)
equal to two percent (2%) above the rate of interest from time
to time applicable to this Note.
C. BORROWING AND REPAYMENT:
1. BORROWING AND REPAYMENT. Borrower may from time to
time during the term of this Note borrow, partially or repay
its outstanding borrowings, and reborrow, subject to all of the
limitations terms and conditions of this Note and of any
document executed in connection with or governing this Note;
provided however, that the total outstanding borrowings under
this Note shall not at any time exceed the principal amount
stated above. The unpaid principal balance of this obligation
at any time shall be the total amounts advanced hereunder by
the holder hereof less the amount of principal payments made
hereon by or for any Borrower, which balance may be endorsed
hereon from time to time by the holder. The outstanding
principal balance of this Note shall be due and payable in full
on April 1, 1997.
2. ADVANCES. Advances hereunder, to the total amount of
the principal sum stated above, may be made by the holder at
the oral or written request of (a) Mossimo Giannulli or Eric
Hohl, any one acting alone, who are authorized to request
advances and direct the disposition of any advances until
written notice of the revocation of such authority is received
by the holder at the office designated above, or (b) any
person, with respect to advances deposited to the credit of any
account of any Borrower with the holder, which advances, when
so deposited, shall be conclusively presumed to have been made
to or for the benefit of each Borrower regardless of the fact
that persons other than those authorized to request advances
may have authority to draw against such account. The holder
shall have no obligation to determine whether any person
requesting an advance is or has been authorized by any
Borrower.
3. APPLICATION OF PAYMENTS. Each payment made on this
Note shall be credited first, to any interest then due and
-5-
Page 50 of 55 <PAGE>
second, to the outstanding principal balance hereof. All
payments credited to principal shall be applied first, to the
outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second,
to the outstanding principal balance of this Note which bears
interest determined in relation to Bank's LIBOR. In the event
there is more than one outstanding Fixed Rate Term at the time
such payments are to be applied to the outstanding principal
balance of this Note which bears interest determined in
relation to Bank's LIBOR, then such payments shall be applied
to such Fixed Rate Terms in such order as may be designated by
Borrower at the time such payments are made. In the absence of
such a designation by Borrower, such payments shall be applied
to the oldest Fixed Rate Term first.
4. PREPAYMENT.
(a) PRIME RATE. Borrower may prepay principal on any
portion of this Note which bears interest determined in
relation to the Prime Rate at any time, in any amount and
without penalty.
(b) LIBOR. Borrower may prepay principal on any portion
of this Note which bears interest determined in relation to
Bank's LIBOR at any time and in the minimum amount of One
Hundred Thousand Dollars ($100,000.00); provided however, that
if the outstanding principal balance of such portion of this
Note is less than said amount, the minimum prepayment amount
shall be the entire outstanding principal balance thereof. In
consideration of Bank providing this prepayment option to
Borrower, or if any such portion of this Note shall become due
and payable at any time prior to the last day of the Fixed Rate
Term applicable thereto by acceleration or otherwise, Borrower
shall pay to Bank immediately upon demand a fee which is the
sum of the discounted monthly differences for each month from
the month of prepayment through the month in which such Fixed
Rate Term matures, calculated as follows for each such month:
(i) DETERMINE the amount of interest which would have
accrued each month on the amount prepaid at the
interest rate applicable to such amount had it
remained outstanding until the last day of the Fixed
Rate Term applicable thereto.
(ii) SUBTRACT from the amount determined in (i) above the
amount of interest which would have accrued for the
same month on the amount prepaid for the remaining
term of such Fixed Rate Term at Bank's LIBOR in
effect on the date of prepayment for new loans made
for such term and in a principal amount equal to the
amount prepaid.
-6-
Page 51 of 55 <PAGE>
(iii) If the result obtained in (ii) for any month is
greater than zero, discount that difference by Bank's
LIBOR used in (ii) above.
Borrower acknowledges that prepayment of such amount may result
in Bank incurring additional costs, expenses and/or
liabilities, and that it is difficult to ascertain the full
extent of such costs, expenses and/or liabilities. Borrower,
therefore, agrees to pay the above-described prepayment fee and
agrees that said amount represents a reasonable estimate of the
prepayment costs, expenses and/or liabilities of Bank. If
Borrower fails to pay any prepayment fee when due, the amount
of such prepayment fee shall thereafter bear interest until
paid at a rate per annum two percent (2%) above the Prime Rate
in effect from time to time (computed on the basis of a 360-day
year, actual days elapsed).
D. EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms
and conditions of that certain Credit Agreement between
Borrower and Bank dated as of February 27, 1996, as amended
from time to time (the."Credit Agreement"). Any default in the
payment or performance of any obligation under this Note, or
any defined event of default under the Credit Agreement, shall
constitute an "Event of Default" under this Note.
E. MISCELLANEOUS:
1. Upon the occurrence of any Event of Default, the
holder of this Note, at the holder's option, may declare all
sums of principal and interest outstanding hereunder to be
immediately due and payable without presentment, demand,
protest or notice of dishonor, all of which are expressly
waived by Borrower, and the obligation, if any, of the holder
to extend any further credit hereunder shall immediately cease
and terminate. Borrower shall pay to the holder immediately
upon demand the full amount of all reasonable payments,
advances, charges, costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all
allocated costs of the holder's in-house counsel), incurred by
the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to
the holder under this Note, and the prosecution or defense of
any action in any way related to this Note, including without
limitation, any action for declaratory relief, and including
any of the foregoing incurred in connection with any bankruptcy
proceeding relating to Borrower.
2. GOVERNING LAW. This Note shall be governed by and
construed in accordance with the laws of the State of
California, except to the extent Bank has greater rights or
-7-
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remedies under Federal law, whether as a national bank or
otherwise, in which case such choice of California law shall
not be deemed to deprive Bank of any such rights and remedies
as may be available under Federal law.
MOSSIMO, INC.
By: Do Not Sign
-----------------------------
Title:
---------------------------
By: Do Not Sign
-----------------------------
Title:
----------------------------
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Page 53 of 55 <PAGE>
EXHIBIT 11
MOSSIMO, INC.
COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share data)
Three Months Ended
March 31, 1996
-----------------
Weighted average shares outstanding
during the period 13,835
Dilutive effect of stock options 139
Equivalent shares issuable for the
outstanding S distribution note 8
-------
13,982
=======
Pro forma net income for primary
income per share $ 3,970
=======
Pro forma net income per share $ .28
=======
Page 54 of 55 <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 11,321
<SECURITIES> 0
<RECEIVABLES> 15,840
<ALLOWANCES> 455
<INVENTORY> 11,430
<CURRENT-ASSETS> 39,561
<PP&E> 1,547
<DEPRECIATION> 810
<TOTAL-ASSETS> 41,233
<CURRENT-LIABILITIES> 6,233
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 34,849
<TOTAL-LIABILITY-AND-EQUITY> 41,233
<SALES> 24,401
<TOTAL-REVENUES> 24,401
<CGS> 13,873
<TOTAL-COSTS> 13,873
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62
<INCOME-PRETAX> 6,728
<INCOME-TAX> 910
<INCOME-CONTINUING> 5,818
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,818
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
