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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported): March 28, 2000
MOSSIMO, INC.
(Exact name of Registrant as specified in charter)
DELAWARE 33-0684524
(State or other 1-14208 (I.R.S. Employer
jurisdiction of (Commission File Number) Identification Number)
incorporation)
2450 WHITE ROAD, 2ND FLOOR, IRVINE, CALIFORNIA 92614
(Address of principal executive offices)
Registrant's telephone number, including area code: (949) 797-0200
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On March 28, 2000, Mossimo, Inc. (the "Company") entered into a license
agreement (the "Target License Agreement") with Target Corporation ("Target")
pursuant to which Target will have the exclusive right to use certain of the
Company's United States trademarks in connection with the design, manufacture
and sale of selected products in the United States. The licensed products will
include, among others, men's, women's, boy's and girl's apparel, fashion
accessories, footwear, home textiles and recreation goods, but initially exclude
those products for which the Company has existing licenses, such as women's swim
and bodywear, men's hosiery, ties and tailored clothing, and optics.
Under the Target License Agreement, Target will collaborate with the Company on
design and be solely responsible for product development, sourcing, quality
control and inventory management with respect to the licensed products. The
Company will not be responsible for carrying any inventory under the agreement.
The Target License Agreement has an initial term that expires in January 2004
and is renewable at the option of Target. The agreement provides that Target
will pay a royalty of 4% on the first $100,000,000 of sales of the licensed
products each year and reduced royalties for sales in excess of $100,000,000.
Target has guaranteed minimum sales of the licensed products of $300,000,000 for
the fiscal year commencing February 1, 2001 and $350,000,000 for each fiscal
year thereafter, which will result in minimum royalties of $8,500,000 for the
fiscal year commencing February 1, 2001 and $9,625,000 for each fiscal year
thereafter.
In connection with the Target License Agreement, the Company entered into an
agreement dated March 27, 2000 with Cherokee Inc. (the "Cherokee Agreement")
pursuant to which Cherokee Inc. was granted the exclusive right to negotiate
direct retail licensing arrangements for the Company for a limited period of
time. Pursuant to the Cherokee Agreement, Cherokee Inc. will receive 15% of the
royalties received by the Company in connection with the Target License
Agreement.
On March 28, 2000, Edwin H. Lewis resigned as President and Chief Executive
Officer and as a director of the Company.
The Target License Agreement and the Cherokee Agreement are attached as Exhibits
10.1 and 10.2 hereto, respectively.
On March 28, 2000, the Company issued a press release regarding the above
referenced events. This press release is attached as Exhibit 99.1 hereto.
ITEM 7. EXHIBITS
10.1 Mossimo License Agreement dated as of March 28, 2000 between Mossimo,
Inc. and Target Stores, a division of Target Corporation
10.2 Cherokee-Mossimo Finders Agreement dated March 27, 2000 between
Mossimo, Inc. and Cherokee Inc.
99.1 Press Release dated March 28, 2000 relating to, among other things,
the Target License Agreement, the Cherokee Agreement and the
resignation of Edwin H. Lewis
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Issuer has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
March 29, 2000
MOSSIMO, INC.
By: /s/ Jody L. Love
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Jody L. Love
Vice President Finance
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EXHIBIT 10.1
MOSSIMO LICENSE AGREEMENT
THIS AGREEMENT is made and entered into as of the 28th day of March,
2000 by and between MOSSIMO, INC., a Delaware corporation ("Licensor") and
TARGET STORES, a division of Target Corporation, a Minnesota corporation
("Licensee").
A. Licensor is the owner of various MOSSIMO trademarks, and the
goodwill associated therewith, and has the right, power and authority to grant
licenses to others to use such trademarks in connection with the design,
manufacture, importation, distribution, marketing, advertising and sale of
certain merchandise.
B. Licensor also has the right, power and authority to cause Mossimo G.
Giannulli ("Giannulli"), an employee, officer and principal shareholder of
Licensor, to perform in the manner provided herein.
C. Licensee is engaged in the marketing and sale of general merchandise
and services.
D. Licensor and Licensee desire to enter into this Agreement relating
to the design, manufacture, importation, distribution, marketing, advertising
and sale of merchandise bearing the MOSSIMO trademarks, on the terms and subject
to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements contained herein, the parties hereto agree as
follows:
1. DEFINITIONS. For purposes of this Agreement, the following capitalized terms
shall have the following meanings and, unless the context otherwise requires,
shall include the plural as well as the singular:
"Design Materials" mean all designs, drawings, sketches,
specifications, inventions, ideas, writings or other documentation, systems,
processes, computer programs, improvements, trade secrets, know-how or similar
rights, whether or not patentable or copyrightable, which are produced in the
course of performing the Services hereunder.
"Trademarks" mean the MOSSIMO trademark, various other marks
incorporating the name MOSSIMO with stylized designs, all as more specifically
set forth as Exhibit A attached hereto, certain common law rights relating
thereto and the goodwill associated therewith.
"Exclusive Merchandise" means products which fall within the categories
identified as exclusive in Exhibit B attached hereto.
"Existing Licensees" means the licensees of the Trademarks in the
Territory under license agreements outstanding as of the date hereof and
identified on Exhibit E hereto.
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"Existing Licensee Merchandise" means products licensed to Existing
Licensees and identified in Exhibit B attached hereto.
"Merchandise" means the Exclusive Merchandise and the Existing Licensee
Merchandise, collectively.
"Fiscal Quarter" means Licensee's fiscal quarters commencing on the
first business day of February, May, August and November each year.
"Net Sales" mean the sales price to customers on all sales of Exclusive
Merchandise by Licensee (whether regular, markdown, clearance or otherwise),
excluding sales tax and finance charges and, less any refunds and credits for
returns actually given by Licensee to its customers.
"Retail Operations" means Target(R) Stores, Target Greatland(R), Super
Target(R), Dayton's, Hudson's, Marshall Field's, Mervyn's, any other retail
store operated by Licensee, and any merchandising activities conducted by
Licensee or its affiliates in the Territory in connection therewith, including
by way of example and not limitation, direct mail, kiosk, internet and websites
thereon, and other wireless and electronic activities whether now known or
hereafter developed.
"Territory" means the United States, its territories and possessions.
2. LICENSE GRANT.
2.1 EXCLUSIVE LICENSE. On the terms and subject to the conditions
contained herein, Licensor hereby grants to Licensee, and Licensee hereby
accepts, the exclusive right and license to use the Trademarks, during the Term
(as defined below) and in the Territory, in connection with the design,
manufacture, importation, distribution, marketing, advertising, sale and offer
to sell Exclusive Merchandise through Licensee's Retail Operations. Licensor
acknowledges and understands that Licensee's marketing and advertising on the
internet through websites operated by the Retail Operations will be accessible
outside of the Territory, and agrees that such activities are permissible
hereunder, provided that Licensee makes no sales to persons or entities outside
of the Territory.
2.2 LIMITATIONS. The foregoing license does not include the right to
grant sublicenses to third parties (except as provided herein in connection with
the manufacture of Exclusive Merchandise and Trademark Use Materials) or the
right to use the Trademarks in connection with the design, manufacture,
importation, distribution, marketing, advertising, sale of any products other
than the Merchandise in the manner provided herein.
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3. SERVICES.
3.1 Licensor shall provide, and shall cause Giannulli to provide,
Licensee with design services in collaboration with, and as reasonably requested
by, such personnel as Licensee shall assign to the design, development and
marketing of the Merchandise (the "Licensee Team"), including but not limited
to, the following (collectively, the "Services"): (a) determining the breadth
and content of the product lines for the Merchandise, including advice regarding
product and trend direction; (b) formulating designs and specifications for the
Exclusive Merchandise, including recommendations as to trim, fabric, materials
and color; (c) designing and developing packaging for the Merchandise, which
service may be provided by a designee of Licensor other than Giannulli; (d)
refreshing the Exclusive Merchandise and formulating new designs in accordance
with the timing and action schedule and transition guidelines attached hereto as
Exhibit C (the "Design Schedule"); (e) upon request, working with Licensee
vendor resources in the manufacturing process for the purpose of achieving
conformance with Giannulli's design concepts, which service may be provided by a
designee of Licensor other than Giannulli; (f) developing positioning,
promotional and other marketing and advertising materials for the Merchandise;
and (g) such other design services as the Licensee Team may reasonably request.
3.2 In order to meet its obligations and commitments hereunder,
Licensor agrees to maintain, during the Term and at its own expense, a design
team based in the Los Angeles area properly staffed and equipped as Licensor and
Licensee mutually agree is reasonably required for Licensor to meet its
obligations and commitments hereunder.
3.3 Licensor acknowledges and understands that the design Services are
subject to Licensee's approval, discretion and control; that the payments to be
made pursuant to Section 5 hereunder are, in part, in consideration of the
design Services, and further, that timing is of the essence in providing the
design Services. Therefore, in the event that Licensor repeatedly fails to meet
the Design Schedule or Licensee reasonably determines that the design Services
are not satisfactory, Licensor agrees to enter into good faith negotiations with
Licensee to resolve or cure such failure or unsatisfactory performance.
3.4 Licensor shall cause Giannulli, and such of Licensor's employees as
Licensor deems appropriate, to attend and participate in a reasonable number of
business meetings, internal Licensee meetings, planning sessions, strategy
meetings and any other meetings related to the planning, development or
promotion of the Exclusive Merchandise, regardless of location, as requested by
Licensee. Licensor shall not be required to cause Giannulli to attend more than
12 such meetings, half of which shall be located in Minneapolis, and half of
which shall be located in the Los Angeles area.
3.5 Licensee shall have the exclusive right to use the Design Materials
in connection with the design, manufacture, importation, distribution,
marketing, advertising, sale and offer to sell Exclusive Merchandise through
Licensee's Retail Operations in the Territory. Licensor shall have the
non-exclusive right to use the Design Materials in connection with the design,
manufacture, importation, distribution,
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marketing, advertising, sale and offer to sell Exclusive Merchandise outside the
Territory provided that each such use shall be subject to Licensee's prior
approval, which approval will not be unreasonably withheld.
3.6 Licensee shall have the right to use the name, signature,
photograph, voice or other sound effects, likeness, personality, endorsement,
biography and statements of Giannulli (the "Mossimo Identification") for
advertising and promotions relating to the Merchandise in broadcast, print,
electronic and wireless media (i.e., television, radio, magazines, newspapers
and free-standing inserts), direct mail, outdoor advertising (i.e., highway and
means-of-transit billboards), in-store signing displays, public relations
materials, the internet and websites thereon, shopping bags, in-house
publications and video programs (not for broadcast or public distribution), as
well as all other reasonable forms of advertising, whether now known and
developed or developed hereafter, provided that such advertising materials are
approved in the manner provided in Section 7 below.
3.7 Subject to the limitations set forth herein, and the reasonable
availability of. Giannulli, Licensor shall cause Giannulli to attend and
participate in all rehearsals, filming, taping, recording and photography
sessions reasonably required to meet the obligations set forth herein (dates and
times to be agreed upon by the parties), and will render his services hereunder
in accordance with the scripts or other materials (including, but not limited
to, wardrobe suggestions) provided by Licensee. Licensor shall cause Giannulli
to render his Services in a competent and professional manner, to the best of
his ability. Licensor shall cause Giannulli to comply with Licensee's reasonable
instructions and recommendations related to providing such Services.
3.8 Licensee retains the perpetual right to use, solely as an
historical example of its advertising, any advertising and promotional materials
produced by or for Licensee hereunder, provided that such use will be
exclusively for internal and/or portfolio purposes.
4. TERM.
4.1 INITIAL TERM. The initial term of this Agreement shall commence on
the date first set forth above and, unless sooner terminated as provided herein,
shall continue until January 31, 2004 (the "Initial Term").
4.2 EXTENDED TERMS. Provided that Licensee is current in its payments
of the Annual Guaranteed Minimum Royalty (as defined below), Licensee shall be
entitled to renew this Agreement thereafter, on the same terms and conditions,
for additional terms of two (2) years each (each, an "Extended Term") by giving
Licensor written notice of its intent to renew at least one (1) year prior to
the end of the then current Term. The "Term" of this Agreement shall be deemed
to include the Initial Term and all Extended Terms, if any. A "Contract Year"
shall be deemed to refer to each period commencing February 1 and ending January
31 during the Term, provided that the first Contract Year shall consist of the
period commencing on the date first set forth above and ending January 31, 2002.
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5. PAYMENTS.
5.1 ROYALTY. During the Term, Licensee shall pay to Licensor as a
royalty an amount equal to the greater of (a) the Annual Guaranteed Minimum
Royalty applicable to such Contract Year; or (b) the applicable percentage of
Net Sales for such Contract Year based on the following schedule (the
"Royalty"):
- Four percent (4%) of Net Sales on sales of Exclusive
Merchandise for such Contract Year up to $100,000,000;
- Two and one-quarter percent (2 1/4%) of Net sales on sales of
Exclusive Merchandise for such Contract Year greater than
$100,000,000 up to $500,000,000; and
- One percent (1%) of Net Sales on sales of Exclusive
Merchandise, for such Contract Year greater than $500,000,000.
5.2 MINIMUM ROYALTIES. Licensee guarantees Licensor that during the
Term, annual Net Sales shall be not less than the following: $300,000,000 for
the first Contract Year, and $350,000,000 for each subsequent Contract Year
("Minimum Net Sales"). In the event that actual annual Net Sales are less than
the Minimum Net Sales, Licensee shall pay to Licensor the difference between the
Royalties actually earned for such Contract Year and the Royalties that would
have been earned based on the Minimum Net Sales (the "Annual Guaranteed Minimum
Royalty"). The Annual Guaranteed Minimum Royalty shall be $8,500,000 for the
first Contract Year; and $9,625,000 for each subsequent Contract Year.
5.3 MANNER OF PAYMENT. Twenty-Five percent (25%) of the applicable
Annual Guaranteed Minimum Royalty shall accrue each Fiscal Quarter. Within
thirty (30) days of the end of the first Fiscal Quarter of each Contract Year
other than the first Contract year, and in the case of the first Contract Year,
within thirty (30) days of the end of the Fiscal Quarter commencing February 1,
2001, Licensee shall pay to Licensor an amount equal to the greater of (a)
Royalties on Net Sales for such Fiscal Quarter calculated pursuant to Section
5.1 above, or (b) 25% of the applicable Annual Guaranteed Minimum Royalty.
Within thirty (30) days of the end of the remaining Fiscal Quarters for such
Contract Year, Licensee shall pay to Licensor an amount equal to the greater of
(a) the amount of the aggregate accrued Royalties payable for Net Sales from the
beginning of the Contract Year to the end of such Fiscal Quarter less the total
of all Royalties already paid for such Contract Year, or (b) the aggregate
accrued Annual Guaranteed Minimum Royalty as of the end of such Fiscal Quarter
less the total of all Royalties already paid for such Contract Year. The
foregoing provisions shall apply separately to each Contract Year, such that any
excess of accrued Royalties over the Annual Guaranteed Minimum Royalty for any
given Contract Year shall not apply toward satisfying the Annual Guaranteed
Minimum Royalty for any future Contract Year and shall not apply as a credit
against Royalties accruing in any subsequent Contract Year. In the event that
Licensee has Net Sales prior to February 1, 2001, Licensee shall pay to Licensor
an amount equal
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to the Royalty on such Net Sales calculated pursuant to Section 5.1 above within
thirty (30) days of the end of the Fiscal Quarter in which such Net Sales
occurred, provided that for the purposes of calculating the amount due for the
Fiscal Quarter commencing February 1, 2001, all prior Net Sales shall be deemed
to be Net Sales for such Fiscal Quarter and an amount equal to the Royalties
already paid shall be subtracted from the amount due for such Fiscal Quarter.
5.4 PROMPT DELIVERY. Licensee acknowledges that time is of the essence
in the delivery of the payments required by this Section 5, and agrees that
interest shall accrue on all past due payments hereunder from their respective
due dates until paid at the rate of one percent (1%) per month, or if such rate
exceeds the maximum rate allowed by law, at the maximum rate allowed by law, and
shall be payable on demand.
6. REPORTS, RECORD KEEPING AND AUDITS.
6.1 MAINTENANCE OF RECORDS. Licensee shall keep true and accurate books
of account and records in accordance with generally accepted accounting
principles, consistently applied, covering all sales relating to this Agreement
and the license hereby granted. Such records shall be maintained for at least
four (4) years after the Fiscal Quarter to which such records relate.
6.2 QUARTERLY REPORTS. Every Royalty payment made hereunder shall be
accompanied by a report (individually, the "Quarterly Report" and collectively,
the "Quarterly Reports") including in reasonable detail, the following:
(a) the quantity, description and gross sales of all Exclusive
Merchandise sold by Licensee during the Fiscal Quarter to which such Royalties
relate;
(b) the aggregate gross sales of all Exclusive Merchandise and the Net
Sales of Exclusive Merchandise, for the contract year to date, and the Net Sales
for such Fiscal Quarter; and
(c) any other related information that may be reasonably required by
Licensor.
6.3 SALES REPORTS. Licensee shall provide Licensor with monthly sales
recap reports and quarterly sales projections (collectively, the "Sales
Reports"), which Sales Reports shall be in the form and format used by Licensee
in the ordinary course of business.
6.4 AUDIT. Licensor and its duly authorized representatives shall have
the right, upon reasonable notice and during normal business hours, to examine
and copy such books of account and records and other documents and materials in
the possession or under the control of Licensee with respect to the subject
matter and the terms of this Agreement, the cost of which shall be borne by
Licensor. Licensor shall not conduct an audit more than once with respect any
Contract Year, and in no event shall such audit occur during Licensee's fourth
Fiscal Quarter. If the audit discloses that the Royalty payments actually due
exceed the Royalty payments made, Licensee shall pay the unpaid Royalty with
interest computed as provided above for late payments. If the audit discloses
that the Royalty
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payments made by Licensee exceed the Royalty payments due, Licensor shall
reimburse Licensee in the amount of such excess. In addition, if the audit
discloses that the Royalty payments actually due exceed the Royalty payments
made by an amount greater than five percent (5%), the cost of the audit
performed by Licensor shall be paid by Licensee.
6.5 FINANCIAL STATEMENTS. If, at any time during the Term, Licensee is
no longer a company required to provide public financial information pursuant to
the Securities and Exchange Commission reporting requirements, Licensee shall,
upon reasonable request of Licensor and from time to time thereafter, provide
Licensor with interim and audited annual financial statements.
7. STANDARDS OF QUALITY; APPROVAL PROCEDURES.
7.1. ENHANCEMENT OF TRADEMARKS. Licensee acknowledges that the
Trademarks have established prestige and goodwill and are well recognized in
the minds of the public, and that it is of great importance to each party
that in the manufacture and sale of the Merchandise the high standards and
reputation that Licensor has established be maintained. Accordingly, the
Exclusive Merchandise and any expression by Licensee, directly or indirectly,
which by its nature conveys to others the existence of a relationship between
Licensee and the Trademarks or the Exclusive Merchandise, including, without
limitation, all packaging, labeling, fixturing, advertising, point of sale
and sales promotion materials and product literature (any such expression
referred to as "Trademark Use Materials") shall be (a) of good quality and
workmanship at least as high as the "top" line of similar products being sold
by Licensee at the time of execution of this Agreement (i.e.,
MERONA-Registered Trademark- brand products); (b) in accordance with all of
the terms and provisions of this Agreement; and (c) subject to the prior
written approval of Licensor in the manner provided below.
7.2. MANUFACTURE OF EXCLUSIVE MERCHANDISE.
(a) SUBCONTRACTS. Licensee shall have the right to contract
the manufacture of the Exclusive Merchandise and the Trademark Use Materials
bearing the Trademarks to third party manufacturers, provided that (i) the
manufacturer and any of its subcontractors sign a Manufacturer's Agreement or
Subcontractor's Agreement, as appropriate, in substantially the forms attached
hereto as Exhibit D; (ii) copies of all such agreements are delivered to
Licensor within seven (7) days after execution, but in any event, prior to the
beginning of manufacture by such third party; (iii) each such third party is
subject to the inspection and quality control procedures set forth herein; and
(iv) the Exclusive Merchandise and Trademark Use Materials meet the quality
standards set forth in this Agreement.
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(b) APPROVAL PROCESS.Prior to manufacturing any Exclusive
Merchandise, Licensee or its agent shall submit to Licensor such pre-production
information, including samples, as Licensor may reasonably request. Licensor
shall have five (5) days to approve or disapprove each such submission. If
Licensor disapproves a submission , it shall advise Licensee of its disapproval
and the reasons therefor in writing within such five (5) day period, and the
style represented on that submission shall not be manufactured or sold by
Licensee.
(c) MARKETING AND ADVERTISING MATERIALS. Prior to advertising
or marketing any Merchandise or Trademark Use Materials, including any materials
which use the Mossimo Identification, but in no event more often than four (4)
times each year during the Term, Licensee shall submit to Licensor for approval,
samples of seasonal advertising plans, and concepts for the Merchandise and
Trademark Use Materials (collectively, the "Advertising Materials"). Licensor
shall have five (5) days to approve or disapprove any Advertising Materials. If
Licensor disapproves any item of Advertising Materials, it shall advise Licensee
of its disapproval and the reasons therefor in writing within such five (5) day
period, and such Advertising Materials shall not be used by Licensee.
(d) DEEMED APPROVALS.If Licensor does not indicate approval or
disapproval of any submissions within the specified time frame, then the
submission shall be deemed to have been approved.
8. EXISTING LICENSEES; DUVAL ENDORSEMENT AGREEMENT; AND NATURE OF
EXCLUSIVITY.
8.1 SALE OF EXISTING LICENSEE MERCHANDISE. Licensor acknowledges that
Licensee's Net Sales of Existing Licensee Merchandise shall be excluded from any
calculation of Royalties due pursuant to Section 5 above. Licensor further
acknowledges and agrees that all Existing Licensee Merchandise purchased by
Licensee from the Existing Licensees shall be deemed approved under Section 7
above.
8.2 RIGHT OF FIRST REFUSAL. At such time as the license agreements with
the Existing Licensees, as they relate to the Territory, expire or terminate for
any reason whatsoever or Licensor has the unilateral right to terminate or not
renew or extend such agreements, Licensee shall have a right of first refusal to
add all or some of the affected Existing Licensee Merchandise to the Exclusive
Merchandise categories hereunder.
8.3 DUVAL ENDORSEMENT AGREEMENT. Licensor represents to Licensee that
it has entered into an exclusive endorsement agreement dated January 1, 2000
(the "Endorsement Agreement") with David Duval, a highly skilled professional
golfer. Licensor agrees that, during the Term, it shall use its rights under the
Endorsement Agreement to use the Duval Identification (as such term is defined
in the Endorsement Agreement) in connection with the advertisement and promotion
of the Exclusive Merchandise as reasonably requested by Licensee. Licensor
further agrees that if Licensee desires to utilize the services of David Duval
as a model or for personal appearances in connection with Licensee's advertising
to promote the Exclusive
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Merchandise, Licensor shall use its best efforts to cause Duval to provide such
services under the Endorsement Agreement at no additional charge to Licensee.
Licensor acknowledges and agrees that Licensee has no responsibility, liability
or obligations, whether for payment or otherwise, under the Endorsement
Agreement.
8.4 NATURE OF EXCLUSIVITY. Licensor agrees that, during the Term and in
the Territory, it will not, and it will cause Giannulli to not, directly or
indirectly, authorize the use of the Trademarks or the Mossimo Identification or
provide design services to or enter into a design agreement or relationship with
any other retailer, manufacturer or distributor relating to the Exclusive
Merchandise categories outlined in Exhibit B without the prior written consent
of Licensee, except (a) as may be necessary to enable Licensor to meet its
obligations under license agreements with Existing Licensees outstanding as of
the date hereof, and (b) for the design, manufacture, distribution and sale of
merchandise to golf pro shops located on the premises of golf courses or country
clubs and commonly referred to as "green grass" shops. Notwithstanding the
foregoing, in no event shall Licensor or Giannulli, directly or indirectly,
authorize the use of the Trademarks or the Mossimo Identification or provide
design services to or enter into a design agreement or relationship with any of
the following entities: Wal-Mart, K-Mart, "clubs" (i.e. Costco, Sams, Fedco),
J.C. Penney, Sears, Kohl's, Dollar General, Pic'n Save, Hills, Bradlees, Ames,
or any affiliates, successors or assigns of the foregoing.
9. REPRESENTATIONS AND WARRANTIES; PROTECTION OF TRADEMARKS.
9.1 Licensor hereby represents and warrants that:
(a) Licensor is free to enter into this Agreement and to grant
the rights herein granted without violating the rights of any third party, and
is not subject to any obligation or disability which will or might hinder or
prevent the full completion and performance by Licensor of all of the covenants
and conditions to be kept and performed by Licensor hereunder;
(b) Licensor will comply with all laws, regulations, orders
and ordinances applicable to the provision of design Services as set forth
herein; and
(c) At no time during the Term will Licensor or Giannulli
disparage their association with Licensee, any Retail Operation or Licensee
product.
9.2 Licensee hereby represents and warrants that:
(a) Licensee is free to enter into this Agreement and to grant
the rights herein granted without violating the rights of any third
party, is not subject to any obligation which will or might hinder or
prevent the full completion and performance by Licensee of all of the
covenants and conditions to be kept and performed by Licensee
hereunder;
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(b) Licensee will comply with all laws, regulations, orders
and ordinances applicable to the performance of its obligations as set
forth herein; and
(c) At no time during the Term, will Licensee disparage its
association with Licensor or Giannulli.
9.3 ACKNOWLEDGEMENTS AND AGREEMENTS REGARDING THE TRADEMARKS. As a
material inducement for each party to enter into this Agreement, and as a
material part of the consideration to each party hereunder, each party hereby
acknowledges and agrees, solely for the benefit of the other party, as follows :
(a) Licensor owns the Trademarks and all rights,
registrations, applications and filings with respect to the Trademarks and all
renewals and extensions of any such registrations, applications and filings;
(b) Licensor has the right to license the Trademarks to
Licensee in the manner set forth herein;
(c) Licensee is acquiring hereby only the right to use the
Trademarks for the purpose stated in and pursuant to the terms and conditions of
this Agreement;
(d) Great value is placed on the Trademarks, and the goodwill
associated therewith; the Trademarks and all rights therein and goodwill
pertaining thereto belong exclusively to Licensor; and all use of the Trademarks
by Licensee, whether authorized or unauthorized, shall inure to the benefit of
Licensor; and
(e) The conditions, terms, restrictions, covenants and
limitations of this Agreement are necessary, equitable, reasonable and essential
to assure the consuming public that all goods sold under the Trademarks are of
the same consistently high quality.
9.4 PROTECTION OF RIGHTS.
(a) Licensor shall take all reasonable steps necessary to prosecute
and maintain federal registrations for the Trademarks.
(b) Licensee shall not use or permit the use of the Trademarks for
any purpose or use other than as expressly licensed under this Agreement.
(c) Licensee shall cooperate fully and in good faith with Licensor
for the purpose of securing and preserving Licensor's (or any grantee of
Licensor's) rights in and to the Trademarks. Licensee shall cause to appear
on and in connection with the Exclusive Merchandise and Trademarks Use
Materials such statutory trademark notices as Licensor may reasonably request.
(d) Licensor shall take such action as it deems necessary or
appropriate, in its reasonable judgment, in respect of any possible
infringements, claims
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or actions in derogation of any Trademark by any third parties and shall inform
Licensee promptly after it has knowledge or becomes aware of any such
infringement, claim or action. If Licensor initiates legal proceedings on
account of any such infringement claim or action, Licensee shall cooperate with
and assist Licensor, at Licensor's expense, to the extent reasonably necessary
to protect the Trademarks, including without limitation, being joined as a
necessary or desirable party to such proceedings.
(e) Licensee shall promptly inform Licensor of any possible
infringements, claims or actions in derogation of any Trademark by any third
parties of which it has knowledge or becomes aware, and shall cooperate with
Licensor in the manner provided above in subsection (c).
(f) Licensee shall, upon request, supply to Licensor enough
specimens of advertisements, tags, labels and other use of the Trademarks as may
be required in connection with any of Licensor's applications or registrations
for the Trademarks. Licensee shall execute any instrument Licensor shall
reasonably deem necessary or desirable to record or cancel Licensee as a
registered user of the Trademarks.
(g) Licensee shall give immediate attention and take such
actions as it deems necessary to resolve legitimate customer complaints relating
to the Merchandise which are brought to Licensee's attention. Licensee shall
give Licensor written notice of all complaints that in Licensee's opinion are
likely to result in litigation.
10. DEFAULTS AND REMEDIES.
10.1 DEFAULTS BY LICENSEE. The occurrence of any one or more of the
following shall constitute a default by Licensee under this Agreement:
(a) Licensee shall fail to make any payment or submit any
report required under this Agreement when due and such failure continues for
more than thirty (30) days after written notice thereof, unless such failure
cannot be cured within such thirty (30) day period and Licensee shall have
commenced to cure the failure within such period and proceeds diligently
thereafter to cure such failure, provided that, with respect to payments due
hereunder, such failure is cured in any event within sixty (60) days after
such written notice.
(b) Licensee uses the Trademarks in any manner likely to
deceive or mislead the public, to endanger the validity of the Trademarks or
to damage or impair the reputation or value of the Trademarks and such use
continues for more than thirty (30) days after written notice thereof, unless
such use cannot be cured within such thirty (30) day period and Licensee
shall have commenced to cure the use and proceeds diligently thereafter to
stop such use, provided that such use is discontinued in any event within
sixty (60) days after such written notice.
(c) The failure of Licensee to perform any of its other
material obligations under this Agreement and such failure continues for more
than thirty (30)
11
<PAGE>
days after written notice thereof, unless such failure cannot be cured within
such thirty (30) day period and Licensee shall have commenced to cure the
failure and proceeds diligently thereafter to cure such failure; provided that
such failure is cured in any event within sixty (60) days after such written
notice.
10.2 DEFAULTS BY LICENSOR. If Licensor fails to perform any of its
material obligations under this Agreement and such failure continues for more
than thirty (30) days after written notice thereof, unless such failure cannot
be cured within such thirty (30) day period and Licensor shall have commenced to
cure the failure and proceeds diligently thereafter to cure such failure;
provided that such failure is cured in any event within sixty (60) days after
such written notice.
10.3 REMEDIES.
(a) If Licensee has not cured any such breach or
nonperformance in accordance with Section 10.1 above, in addition to all of the
other rights and remedies available to Licensor, whether pursuant to the terms
of this Agreement, at law, in equity, or otherwise, Licensor shall have the
right to terminate this Agreement without further notice to Licensee; provided,
however, that the decision to terminate this Agreement must be exercised in
writing, if at all, within thirty (30) days after the cure period expires.
(b) If Licensor has not cured any such breach or
nonperformance in accordance with Section 10.2 above, in addition to all of the
other rights and remedies available to Licensee, whether pursuant to the terms
of this Agreement, at law, in equity, or otherwise, Licensee shall have the
right to terminate this Agreement without further notice to Licensor; provided,
however, that the decision to terminate this Agreement must be exercised in
writing, if at all, within thirty (30) days after the cure period expires.
10.4 EFFECT OF EXPIRATION OR TERMINATION.
(a) Except as specifically provided herein to the contrary,
upon expiration or termination of this Agreement, the rights and licenses
granted herein shall terminate and Licensee shall have no further right to use
the Trademarks or Trademark Use Materials in connection with the Merchandise,
the Retail Operations or otherwise. Upon the request of Licensor, Licensee shall
immediately execute without further consideration such assignments and other
instruments which may be required to be recorded to effect the termination of
the licenses and rights granted herein (and the assignments of Licensee's rights
to Licensor). Within thirty (30) days of the expiration or termination of this
Agreement, Licensee shall deliver to Licensor all unpaid Royalties together with
a final Quarterly Report covering all sales of Merchandise from the end of the
period covered by the preceding Quarterly Report through the date of expiration
or termination of this Agreement.
(b) In the event this Agreement is terminated pursuant to
Section 10.3(a), then Licensee shall pay to Licensor, within thirty (30) days of
the termination date, such Annual Guaranteed Minimum Royalty as would be due for
such Contract
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<PAGE>
Year, calculated in accordance with Section 5 above. In the event this Agreement
is terminated pursuant to Section 10.3(b), then Licensee shall have no
obligation to pay any Annual Guaranteed Minimum Royalty accruing or due after
the date of expiration or termination of this Agreement.
(c) Upon the termination or expiration of this Agreement by
Licensor or Licensee, for any reason whatsoever, Licensor shall have a right of
first refusal to purchase any finished goods or any piece goods in the
possession of Licensee, its agents, manufacturers or subcontractors, on the date
of termination or expiration of this Agreement (the "Termination Date"), at a
price equal to Licensee's actual cost of production therefor. If Licensor
declines to purchase all of such goods at that time, Licensee shall have six (6)
months from the Termination Date in which to use the Trademarks to dispose of
its inventory of Merchandise manufactured, or ordered and in production, by
Licensee prior to the Termination Date (the "Sell-Off Period"). Such disposition
must be through the same channels used by Licensee prior to the Termination
Date. In addition, Licensee shall destroy or deliver to Licensor all Trademark
Use Materials within thirty (30) days of the expiration of the Sell-Off Period
other than such materials as Licensee desires to keep for the purposes set forth
in Section 3.8 above.
11. MORALS. If Giannulli is (a) convicted of or admits to the commission of any
felony, (b) convicted of any offense involving substance abuse, or (c) publicly
admits that he is addicted to any controlled substance, then Licensee shall have
the right to immediately terminate this Agreement. Licensee's decision on all
matters arising under this Section 11 shall be conclusive, provided that
Licensee's decision to terminate this Agreement must be exercised in writing, if
at all, within thirty (30) days after the facts giving rise to such right to
terminate are brought to Licensee's attention.
12. SERVICES UNIQUE. Licensor and Licensee agree that the Services to be
performed by Giannulli hereunder are special, unique, unusual, extraordinary,
and of an intellectual character giving them a peculiar value, the loss of which
cannot be reasonably or adequately compensated in damages in an action at law.
Accordingly, the parties agree that Licensee shall be entitled, in the event of
a material failure by Giannulli to perform such Services in the manner required
hereunder, to seek equitable relief by injunction or otherwise in addition to
whatever other remedies Licensee may have. Licensor further agrees that in the
event of the termination of employment, death or permanent disability of
Giannulli or a material change in Giannulli's ownership or control of Licensor,
which event or change is likely, in Licensee's reasonable judgment, to
materially affect the ability of Licensor to perform its obligations hereunder,
Licensee shall have the right to immediately terminate this Agreement by written
notice to Licensor.
13. NO ASSIGNMENT. The parties acknowledge and agree that the rights granted
herein are personal in nature and may not, in whole or in part, be transferred,
delegated or assigned by any party without the prior written consent of the
other parties; provided, however, that Licensor may assign its right to receive
payment(s) hereunder, and either Licensee or Licensor may transfer or assign
this Agreement to any parent, subsidiary,
13
<PAGE>
affiliate or entity which acquires a majority ownership interest in such party,
provided such entity assumes the obligations of such party under this Agreement.
Notwithstanding the foregoing, Licensee agrees that in the event Licensor, for
the purpose of facilitating a proposed financing or securitization transaction,
desires to (a) transfer or assign this Agreement (and the Trademarks) to a
different entity such as a "bankruptcy remote" special purpose entity, (b)
assign and pledge its rights (and the Trademarks) under this Agreement to
investors as collateral in a financing or securitization transaction, and (c)
have payments due to Licensor under this Agreement made to a designated
controlled account, Licensee shall not withhold its consent thereto unless such
actions would have a materially adverse affect upon its rights hereunder.
Licensee further agrees to furnish such information and take such other actions
(at no material cost or disruption to Licensee) which are reasonably requested
by Licensor to facilitate such proposed financing or securitization. Any
purported transfer, delegation or assignment, whether voluntary or
involuntarily, by operation of law or otherwise, in violation of this Section
shall be null and void and constitute a default hereunder by the party
attempting to so transfer, delegate or assign.
14. INDEMNIFICATION AND INSURANCE.
14.1 INDEMNIFICATION OF LICENSOR. Licensee shall indemnify and hold
Licensor and its affiliates, directors, officers, employees and agents (the
"Licensor Parties") harmless from and against any and all liabilities, losses,
claims, suits, damages, costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) arising out of or otherwise relating to
any claims of third parties against any of the Licensor Parties relating to a
breach by Licensee of any warranty, representation, term or condition made or
agreed to by Licensee hereunder or involving the manufacture, packaging,
distribution, promotion, sale, marketing, advertising or other use of the
Trademarks, the Exclusive Merchandise or the Trademark Use Materials, provided
that (a) prompt written notice is given to Licensee upon Licensor becoming aware
of any such actual or threatened claims or suits; (b) Licensee shall have the
option to exclusively undertake and conduct the defense and/or settlement of any
such claims or suits; and (c) no settlement or attempt at settlement of any such
claims or suits is made without the prior written consent of Licensee; and
provided further, that in no event shall Licensee's liability hereunder exceed
the amount of Royalties actually paid by Licensee hereunder for the previous
twelve (12) months. Licensor acknowledges that this indemnity does not include
those items for which Licensor is indemnifying Licensee in Section 14.2 below.
14.2 INDEMNIFICATION OF LICENSEE. Licensor shall defend, indemnify
and hold Licensee and its affiliates, directors, officers, employees, and
agents (the "Licensee Parties") harmless from and against any liabilities,
losses, claims, suits, damages, costs and expenses (including without
limitation, reasonable attorneys' fees and expenses), arising out of or
otherwise relating to any claims of third parties against any of the Licensee
Parties relating to a breach by Licensor of any warranty, representation,
term or condition made or agreed to by Licensor hereunder or alleging
trademark infringement, unfair competition or infringement of other similar
proprietary rights, arising out of the use by Licensee and/or its contractors
of the Trademarks or the Design Materials as
14
<PAGE>
authorized in this Agreement, provided that (a) prompt written notice is given
to Licensor of any such actual or threatened claims or suits; (b) Licensor shall
have the option to exclusively undertake and conduct the defense and/or
settlement of any such claims or suits; and (c) no settlement or attempt at
settlement of any such claims or suits is made without the prior written consent
of Licensor, and provided further, that in no event shall Licensor's liability
hereunder exceed the amount of Royalties actually received by Licensor hereunder
for the previous twelve (12) months. Licensee acknowledges that this indemnity
does not include those items for which Licensee is indemnifying Licensor in
Section 14.1 above.
14.3 INSURANCE. Licensee shall obtain and maintain throughout the Term,
at its own expense, general liability insurance and product liability insurance,
with a responsible insurance carrier or carriers acceptable to Licensor
providing adequate protection (at least in the amount of $5,000,000 single
limits for personal injury or property damage, with no deductible) and naming
Licensor as an additional insured. As soon as possible after the execution of
this Agreement, Licensee shall deliver to Licensor a fully paid certificate or
certificates of insurance, naming Licensor as an additional insured, and
providing that such policy or policies are cancelable only after thirty (30)
days prior written notice to Licensor.
15. CONFIDENTIALITY. The parties acknowledge and agree that any and
all reports and financial information disclosed by a party pursuant to this
Agreement are confidential information commercially valuable to such party
(the "Confidential Information"). The parties acknowledge that Confidential
Information is disclosed hereunder on a confidential basis to be used only as
expressly permitted by the disclosing party. Each receiving party, its
officers, directors, employees, and agents, shall protect the Confidential
Information belonging to the other party and shall not disclose it to any
other person, firm, organization, or employee unless authorized, in writing,
by the disclosing party or required by governmental or judicial law
regulation or ruling, including pursuant to subpoena or other court or
administrative process. Except as expressly permitted hereunder, the
Confidential Information may not be copied, reprinted, duplicated, or
recreated in whole or in part without the express written consent of the
disclosing party. Each receiving party shall take responsibility for action
by instruction, agreement or otherwise with respect to its employees or other
persons permitted access to the Confidential Information to comply fully with
the obligations hereunder with respect thereto. The parties each agree to
return the Confidential Information belonging to the other party, and all
copies thereof, to the disclosing party, upon request. Each party hereby
consents to the disclosure of its Confidential Information to any of the
other party's attorneys, accountants and similar third parties who have a
business "need to know" such information.
16. GENERAL PROVISIONS.
16.1 NOTICES. All notices and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
delivered either by personal service, facsimile or prepaid overnight courier
service and addressed as follows:
15
<PAGE>
IF TO LICENSOR: MOSSIMO, INC.
2450 White Road, Second Floor
Irvine, CA 92614
Attn.: Chief Executive Officer
IF TO LICENSEE: TARGET STORES
33 South Sixth Street
Minneapolis, MN 55405
Attn: Senior Vice President,
Merchandising Softlines
WITH A COPY TO: TARGET BRANDS, INC.
33 South Sixth Street
Minneapolis, MN 55405
Attn: President
If delivered personally, such notices or other communications shall be deemed
delivered upon delivery. If sent by fax, such notice or other communications
shall be deemed delivered when received provided that the sender has
confirmation of receipt. If sent by prepaid overnight courier service, such
notices or other communications shall be deemed delivered upon delivery or
refusal to accept delivery as indicated on the return receipt. Either party may
change its address at any time by written notice to the other party as set forth
above.
16.2 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding between the parties with respect to the subject matter hereof
and supersedes any and all prior negotiations, discussions and agreements
relating to the subject matter hereof. No representations, express or implied,
other than those specifically set forth herein have been made by any party
hereto. This Agreement may not be orally changed, altered, modified or amended
in any respect.
16.3 SUCCESSORS AND ASSIGNS. Without limiting anything herein to the
contrary, this Agreement shall be binding upon and shall inure to the benefit of
the successors and permitted assigns of the parties.
16.4 CHOICE OF LAW. The validity, construction and enforcement of this
Agreement shall be governed by the laws of the State of Minnesota, without
regard to its choice of law principles.
16.5 NO WAIVER. No waiver by any party hereto, whether express or
implied, of any provision of this Agreement or of any breach or default of any
party, shall constitute a continuing waiver of such provision or any other
provisions of this Agreement, and no such waiver by any party shall prevent such
party from acting upon the same or any subsequent breach or default of the other
party of the same or any other provision of this Agreement.
16
<PAGE>
16.6 DISCLAIMER OF AGENCY. Nothing in this Agreement shall create a
partnership or joint venture or establish the relationship of principal and
agent or any other relationship of a similar nature between the parties hereto,
and neither Licensee nor Licensor shall have the power to obligate or bind the
other in any manner whatsoever nor shall Giannulli have the power to obligate or
bind Licensee in any manner whatsoever.
16.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.8 SURVIVAL. The provisions of this Section 16 shall survive the
expiration or termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in
the manner appropriate to each, as of the day and year first above written.
LICENSEE: TARGET STORES, A DIVISION OF TARGET CORPORATION
By: /s/ Luis Padilla
----------------------------------
Luis Padilla
Senior Vice President,
Merchandising Softlines
LICENSOR: MOSSIMO, INC.
By: /s/ Mossimo Giannulli
----------------------------------
Title: Chairman, President and
Chief Executive Officer
-------------------------------
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TB 45262 v5 Page 1 of 1
EXHIBIT A
TRADEMARKS
REGISTRATIONS
<TABLE>
<CAPTION>
TRADEMARK CLASS REGISTRATION NUMBER REGISTRATION DATE
<S> <C> <C> <C>
M IN A BOX DESIGN 25 1611314 28 Aug 1990
MOSS 9 2155830 05 May 1998
MOSS 25 2157797 12 May 1998
MOSSIMO (Block) 9 1746343 12 Jan 1993
MOSSIMO (Block) 14 2051272 08 Apr 1997
MOSSIMO (Block) 25 1551068 08 Aug 1989
MOSSIMO (Stylized) 14 2053214 15 Apr 1997
MOSSIMO (Stylized) 25 2201308 03 Nov 1998
MOSSIMO (Stylized) 42 1970116 23 Apr 1996
MOSSIMO (Stylized) 42 1984437 02 Jul 1996
MOSSIMO AND BADGE DESIGN 25 1813793 28 Dec 1993
MOSSIMO AND M DESIGN 9 1775768 08 Jun 1993
MOSSIMO AND M DESIGN 25 1620035 30 Oct 1990
MOSSIMO GIANNULLI 9 2157796 12 May 1998
MOSSIMO GIANNULLI 25 2155829 05 May 1998
<CAPTION>
APPLICATIONS
TRADEMARK CLASS APPLICATION NUMBER FILING DATE
<S> <C> <C> <C>
BABY MOSS 25 75/100784 8 May 1996
MOSS 3, 14, 18 74/735725 29 Sep 1995
MOSSIMO (BLOCK) 3 75/633095 02 Feb 1999
MOSSIMO (Stylized) 3 75/248668 27 Feb 1997
MOSSIMO (Stylized) 9 75/689070 21 Apr 1999
MOSSIMO (Stylized) 18 75/759670 26 Jul 1999
MOSSIMO FOOTWEAR 25 75/768844 4 Aug 1999
MOSSIMO FOOTWEAR 35 75/767903 4 Aug 1999
</TABLE>
Page 1 of 1
<PAGE>
EXHIBIT B
EXCLUSIVE MERCHANDISE CATEGORIES
WOMEN'S: Casual Denim & Sportswear; Dresses; Activewear; Skiwear; Golfwear;
Tenniswear; Intimate Apparel (sleepwear, robes, loungewear, daywear, panties &
foundations).
FASHION ACCESSORIES: Jewelry; Watches; Luggage; Handbags; Small Leather Goods;
Belts; Neckwear; Hair Goods; Hats; Rainwear; Cold Weather; Gloves; Slippers.
MEN'S: Casual Denim & Sportswear; T-shirts; Swimwear; Activewear; Skiwear;
Golfwear; Tenniswear; Furnishings; Accessories (hats, belts, small leather
goods).
GIRLS 0-14: Casual & Denim Sportswear; Dresses; Activewear; Swimwear;
Furnishings; Underwear; Fashion Accessories (cold weather accessories, slippers,
accessories, handbags, backpacks, hosiery).
BOYS 0-20: Casual & Denim Sportswear; T-shirts; Activewear; Swimwear;
Furnishings (sleepwear, cold weather accessories, slippers,); Underwear.
NEWBORN & LAYETTE: Boy and Girl.
FOOTWEAR: Womens; Mens; Boys; Girls.
COSMETICS: Treatment; Fragrance; Bath & Body; Lip & Nail; Cosmetic Accessories.
HOME TEXTILES: Bedding; Bath; Table Linens; Rugs.
RECREATION: Luggage, Backpacks.
EXISTING LICENSEE MERCHANDISE CATEGORIES
WOMEN'S: Swim and Bodywear.
MEN'S: Hosiery; Ties; Tailored clothing, including suits, sport coats, dress
shirts, dress trousers, tuxedos, tailored overcoats and casual trousers.
FASHION ACCESSORIES: Sunglasses, sport glasses and optical frames for men, women
and children, and eyeglass cases.
Page 1 of 1
<PAGE>
EXHIBIT C
TIMING AND ACTION AND TRANSITION GUIDELINES
<PAGE>
EXHIBIT E
EXISTING LICENSEES
GFT Apparel Corp.
Lunada Bay Corporation
Marcolin S.P.A.
Mountain High Hosiery, Ltd.
Superba, Inc.
Page 1 of 1
<PAGE>
EXHIBIT 10.2
CHEROKEE-MOSSIMO FINDERS AGREEMENT
This Cherokee-Mossimo Finders Agreement ("Agreement") is made and
entered into this 27 day of March 2000 (the "Effective Date") by and between
Cherokee Inc., a Delaware corporation ("Cherokee"), and Mossimo, Inc., a
Delaware corporation ("Mossimo").
Whereas, Mossimo owns the various Mossimo trademark applications and
registrations listed on Exhibit "A" hereto (the "Mossimo Trademarks"); and
Whereas, Mossimo and Cherokee have entered into that certain Letter of
Intent dated February 22, 2000 (the "LOI"); and
Whereas, pursuant to the LOI, Cherokee has introduced Mossimo to such
executives at Target Corporation ("Target") to enable Mossimo to negotiate a
licensing agreement with Target with respect to the Mossimo Trademarks; and
Whereas, Mossimo and Cherokee desire to extinguish the obligations of
each of the parties set forth in the LOI and to substitute this Agreement as a
novation for the LOI;
Now, therefore, in consideration of the foregoing and for other good and
valuable consideration, the parties hereto agree as follows:
1. PRIOR AGREEMENTS. This Agreement is intended by the parties to
supercede and replace all prior agreements or understandings of any type between
the parties (the "Prior Agreements"), including without limitation the letter
agreement dated February 18, 2000 and the LOI, and all such Prior Agreements
shall terminate and be of no further force or effect upon execution of this
Agreement.
(a) Mossimo and Cherokee (the "Parties") each hereby releases
the other Party and its officers, directors, shareholders, agents,
representatives, servants and employees past, present and future, and each of
them, from any and all obligations, debts, claims, demands and causes of action
of any kind or nature, whether known or unknown, suspected or unsuspected by the
Parties and their respective past, present and future officers, directors,
shareholders, agents, representatives, servants and employees (collectively, the
"Releasers"), which the Releasers or any of them now owns or holds, or has at
any time owned or held or may hereafter own or hold against the other Party or
any of the Releasers, arising out of, related to or in any way connected with
the Prior Agreements.
(b) It is the intention of the Parties in executing this
instrument that the same shall be effective as a bar to each and every claim,
demand and cause of action hereinabove specified; and in furtherance of this
intention, the Parties hereby expressly waive any and all rights and benefits
conferred upon them by the provisions of Section 1542 of the California Civil
Code and expressly agree that the above releases are intended to and do extend
to and cover claims of the type referred to in said Section 1542, which reads as
follows:
<PAGE>
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR EXPECT TO EXIST IN HIS FAVOR
AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY
HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH
THE DEBTOR."
The Parties expressly consent that the above releases shall be given
full force and effect according to each and all of their express terms and
provisions, including as well those relating to the unknown and unsuspected
claims, demands and causes of action hereinabove specified.
2. EXCLUSIVE NEGOTIATION PERIOD. Mossimo shall not enter into licensing
discussions or negotiations with respect to direct retail licenses with any
person or entity other than the Prospective Licensees (as hereinafter defined)
from the Effective Date until June 21, 2000. Nothing herein shall be construed
to obligate Mossimo to enter into any license agreement with the Prospective
Licensees. Mossimo has the right in its sole and absolute discretion to reject
any license agreement proposed by a Prospective Licensee, and Cherokee shall not
be entitled to any compensation whatsoever, including, but not limited to, under
this Agreement, unless Mossimo enters into a license agreement with a
Prospective Licensee.
3. FINDER'S FEES.
(a) COMPUTATION. If Mossimo enters into a direct retail license
agreement with a Prospective Licensee on or before February 21, 2001, Mossimo
shall pay to Cherokee in perpetuity finder's fees (the "Finder's Fees") equal to
fifteen percent (15%) of Net Revenues (as hereinafter defined). No Finder's Fees
will be due if Mossimo does not enter into a license agreement with a
Prospective Licensee on or before February 21, 2001.
(b) PAYMENT. Mossimo shall pay Finder's Fees to Cherokee within
fifteen (15) days after Mossimo's receipt of any Net Revenues. Payment of
Finder's Fees shall be accompanied by a written report setting forth the Net
Revenues actually received by Mossimo (broken down by date and amount received)
since the date of the last report delivered to Cherokee and such other
information as is necessary to enable Cherokee to verify the Net Revenues
reported by Mossimo. Finder's Fees shall be payable in United States Dollars.
Interest at the maximum legal rate shall be paid on any Finder's Fees not paid
when due.
(c) NET REVENUES. "Net Revenues" shall mean all consideration of
any kind, without deductions or set-offs, received directly or indirectly by or
on behalf of Mossimo and its affiliates, successors and assigns from Target
Corporation or J.C. Penney Company, Inc., and their respective affiliates,
successors and assigns (collectively, "Prospective Licensees"), from and after
the Effective Date with respect to or by reason of any license, franchise, sale
or assignment of the Mossimo Trademarks. Mossimo shall not enter into any
agreement with Prospective Licensees pursuant to which Mossimo will receive any
consideration that is not included within Net Revenues.
-2-
<PAGE>
4. PRESS RELEASE. Within seven (7) days following the effective date of
any licensing agreement entered into between Mossimo and Prospective Licensees,
Mossimo shall issue a press release set forth as Exhibit "B" attached hereto.
5. NO JOINT VENTURE: The parties hereto are not partners or joint
venturers. Cherokee shall have no liability with respect to Mossimo's business
or operations, Mossimo's negotiations with Prospective Licensees or any other
party, or the performance by Mossimo under any contract entered into with
Prospective Licensees or any other party. Mossimo is not responsible for any
actions of any third party regarding any license agreement entered into by
Mossimo.
6. COUNTERPARTS. This Agreement may be executed by the parties hereto in
separate counterparts, each of so when executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the successors and assigns of the parties.
8. MISCELLANEOUS. This Agreement expresses the complete understanding of
the parties with respect to the subject matter hereof. All prior understandings
are hereby canceled and no change in any term of this Agreement shall be binding
unless it is in writing and signed by Cherokee and Mossimo. This Agreement shall
be considered made in and shall be interpreted in accordance with the laws of
the State of California. Any disputes arising hereunder shall be arbitrated in
Los Angeles County, California in accordance with the rules and regulations of
the American Arbitration Association and the prevailing party in any such
arbitration shall be entitled to recover its legal fees and expenses from the
other party.
9. NATURE OF AGREEMENT. The parties agree that this Agreement is not a
broker agreement and shall not be treated as such. The parties agree that
neither shall ever assert as a defense to a claim of breach of this Agreement or
any other agreement between them that this Agreement or the Prior Agreements are
illegal agreements.
In witness whereof, the undersigned have executed this Agreement as of
the day and year first above written.
CHEROKEE INC. MOSSIMO, INC.
/s/ Robert Margolis /s/ Mossimo Giannulli
- ---------------------------------- ----------------------------------
Robert Margolis Name: Mossimo Giannulli
Chairman and CEO Chairman
-3-
<PAGE>
MOSSIMO INC. SIGNS MAJOR LICENSING DEAL WITH TARGET
CORPORATION AND REPORTS FOURTH QUARTER AND FISCAL YEAR 1999
SALES AND EARNINGS
IRVINE, Calif.--(BUSINESS WIRE)--March 28, 2000--Mossimo, Inc. (NYSE:MGX -
NEWS), a modern lifestyle branded apparel company announced today that it has
entered into a major, multi-product licensing agreement with Target Corporation
(NYSE:TGT - NEWS). The company also announced financial results for the fourth
quarter and fiscal year ended December 31, 1999, as well as the resignation of
its President and Chief Executive Officer, Edwin Lewis.
According to the licensing agreement, Mossimo, Inc. will contribute design
services and license the Mossimo trademark to Target Corp. in the U.S., in
return for royalties with substantial guaranteed minimum payments. Target will
collaborate on design and be responsible for product development, sourcing,
quality control and inventory management. Under this agreement, Mossimo will not
be responsible for carrying any inventory. The licensed product line will
initially include men's and women's apparel, but may be expanded to include all
soft line categories, fragrances, other accessories and house wares, not subject
to existing license agreements with other licensees, and will be distributed
through all 923 Target stores across the U.S. Mossimo's existing licenses will
remain in effect. Although specifics of the deal were not disclosed, the
three-year sales guarantee beginning February 2001 is $1 billion.
Mossimo Giannulli, Chairman and Creative Director of Mossimo, Inc. commented,
"We are pleased to announce this alliance with Target, as this arrangement
combines our design vision and marketing philosophy with Target's national
reputation, merchandising expertise and powerful distribution capabilities. By
joining forces with what we believe to be one of the leading retailers in the
market today, we can further leverage the strength of the Mossimo brand and
significantly expand our reach. Target has had great success with other highly
recognized designers such as Michael Graves and Phillipe Starck in home goods,
and we believe the opportunities for us are tremendous. I truly believe this
represents the next big evolution in retailing -- dominant retailers working
together with marquee brands toward a common goal."
"Mossimo has a strong, loyal following among our design-savvy guests," said Bob
Ulrich, Chairman and Chief Executive Officer of Target Corporation. "His vision
and creativity will help us continue to provide cutting edge design at an
affordable price."
As part of this deal, Mossimo, Inc. entered into an agreement with Cherokee Inc.
(NASDAQ:CHKE - NEWS), to assist and advise on the deal. Cherokee Inc. markets
its Cherokee brand and other brands worldwide. "Cherokee has pioneered what I
believe to be a truly successful and unique strategy for the retail industry,"
Mr. Giannulli continued. "While my personal involvement and product design makes
this deal different from the Target/Cherokee agreement, the template established
by Cherokee remains the same. Robert Margolis, Cherokee's Chairman, President
and CEO, has been a tremendous help in executing this agreement."
Mossimo, Inc. also reported financial results for the fourth quarter and twelve
months ended December 31, 1999. Net sales for the quarter decreased to $7.4
million, compared to $8.4 million for the fourth quarter of 1998. The decrease
in net sales was primarily due to severe price reductions in department stores,
resulting in greater markdown assistance from the Company. The Company reported
a net loss of $7.0 million versus a net loss of $2.6 million in the same period
in 1998, and the diluted earnings per share loss was $0.46 versus a diluted
earnings per share loss of $0.17 in the fourth quarter of 1998.
Royalty income increased to $887,000 in the fourth quarter of 1999 from $756,000
in the corresponding quarter in 1998. The increase was primarily due to
increased royalties from some of
<PAGE>
the Company's domestic licensees, which were offset in part by reduced royalties
as a result of the termination of the Company's accessories license agreement as
of December 31, 1998.
Gross profit as a percentage of net sales decreased to (35%) during the fourth
quarter of 1999 compared to 23% in the corresponding quarter in 1998. The
decrease was primarily due to additional production costs for product which did
not clear or was delayed by U.S. Customs and additional markdown assistance,
partially offset by increased men's and women's regular-priced sales and
increased margins on sales of excess inventory during the fourth quarter of
1999, as compared to the fourth quarter of 1998. Total operating expenses
remained flat at $5.0 million versus the corresponding quarter, despite
increased marketing expenditures. However, operating expenses as a percentage of
sales rose to 68% compared to 60% primarily due to the decrease in sales
discussed above.
Net sales for the year ended December 31, 1999 increased 5% to $47.4 million,
compared to $45.3 million for the year ended December 31, 1998. The Company
reported a net loss of $12.9 million, versus a net loss of $13.8 million in the
same period last year, and the diluted earnings per share loss was $0.86 versus
diluted earnings per share loss of $0.92 in 1998. Excluding a one-time, non cash
charge of $6.1 million related to insurance coverage recorded during the second
quarter of 1999, the Company's net loss was $6.8 million and diluted earnings
per share loss was $0.45 for 1999.
The Company has been advised by its independent public accountants that, unless
the Company is able to obtain certain financing arrangements, their auditor's
report on the financial statements as of December 31, 1999 will be qualified as
to the ability to continue as a going concern. Since royalties from the Target
agreement are not expected to commence until May 2001, the Company is actively
seeking financing to cover anticipated operating shortfalls during this interim
period.
Mr. Giannulli further commented, "Over the past three years, we have evaluated a
number of strategic alternatives, to improve the Company's long-term prospects
and increase shareholder value. Since Edwin's arrival, we achieved many positive
things. In 1999, we successfully transformed Mossimo into a modern collection
business, which allowed us to significantly increase our penetration in
department stores. We also upgraded our marketing efforts and created a new
Mossimo lifestyle campaign, more reflective of our contemporary brand image, and
signed an exclusive, multi-year endorsement agreement with David Duval, one of
the top two golfers in the world, which further validated our lifestyle
positioning, product design and philosophy.
"But as the retailers continue to rely more and more on the brands to meet their
margin goals, it has become increasingly difficult for under-capitalized
companies, like ours, to compete," Mr. Giannulli continued. "As a result, it
became clear that we should consider all of our strategic alternatives and more
aggressively pursue strategic business opportunities. Therefore, we retained
Wasserstein Perella & Co. to assist and advise us in this process.
"After, significant due diligence, we concluded that a partnership with Target
is the most beneficial course of action for both our stockholders and the
Mossimo brand, and we are optimistic that it will generate long-term growth.
However, this new arrangement will also certainly change our operating
structure. Due to the changes in the Company's operations and its new business
model, Edwin Lewis is resigning his position as President and Chief Executive
Officer and Director, but will assume an advisory role going forward." Mossimo,
Inc. also announced that as a result of this new Target agreement, the Company
will implement a significant number of layoffs as it streamlines its business
operations. The ongoing infrastructure will primarily consist of design and
finance functions.
Mr. Giannulli commented, "This new arrangement is not the traditional wholesale
to retail business that is Edwin's unique expertise. Therefore he has resigned
his position as President and CEO. I have asked him to remain on in an advisory
role, and he has gladly accepted."
<PAGE>
Mr. Giannulli continued, "Edwin Lewis has been a tremendous asset to our Company
over the past 16 months and I would like to thank him for his hard work and
dedication. In my opinion, Edwin is unmatched in the industry in terms of
talent, as well as integrity. He has become a close friend and respected
confidant, and I am pleased he will continue to be involved with the Company
going forward, albeit in a different capacity."
Mr. Giannulli concluded, "We are closing one chapter in our Company's history
and now we are beginning another. It is an exciting time for Mossimo, Inc. and
we look forward to capitalizing on the opportunities that lie ahead."
Founded in 1987, Mossimo, Inc. is a designer and manufacturer of men's and
women's sportswear, with a focus on the contemporary fashion-minded consumer.
The matters discussed in this news release with respect to operations and future
results, and the benefits thereof, are forward looking statements that involve
risks and uncertainties, including changes in consumer demands and preferences,
competition from other lines, and uncertainties generally associated with
product introductions and apparel retailing. More information on factors which
could affect the company's financial results is included in the company's 1999
annual report and Form 10-K, filed with the S.E.C.
MOSSIMO, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended December 31, Ended December 31,
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 7,384 $ 8,379 $ 47,393 $ 45,310
Cost of sales 9,946 6,449 37,069 35,994
-------- -------- -------- --------
Gross profit (2,562) 1,930 10,324 9,316
Royalty income, net 887 756 3,686 3,214
-------- -------- -------- --------
(1,675) 2,686 14,010 12,530
-------- -------- -------- --------
OPERATING EXPENSES:
Selling, general and
administrative 5,037 5,043 20,001 21,677
Non-cash insurance premium - - 6,100 -
Lease restructuring - (6) - 3,792
-------- -------- -------- --------
Total operating
expenses 5,037 5,037 26,101 25,469
-------- -------- -------- --------
Operating income loss (6,712) (2,351) (12,091) (12,939)
-------- -------- -------- --------
OTHER EXPENSE:
Other, net - (13) (3) (140)
Interest, net (231) (145) (834) (612)
-------- -------- -------- --------
Net other expense (231) (158) (837) (752)
<PAGE>
-------- -------- -------- --------
Net loss before income taxes (6,943) (2,509) (12,928) (13,691)
Provision for income taxes 13 107 13 107
-------- -------- -------- --------
Net loss $ (6,956) $ (2,616) $(12,941) $(13,798)
======== ======== ======== ========
Net loss per common share:
Basic and diluted $ (0.46) $ (0.17) $ (0.86) $ (0.92)
======== ======== ======== ========
Weighted average common
shares outstanding:
Basic and diluted 15,061 15,011 15,050 15,010
======== ======== ======== ========
</TABLE>
MOSSIMO, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
1999 1998
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 473 $ 176
Accounts receivable, net 787 979
Due from factor, net - 3,064
Inventories 5,682 8,325
Refundable taxes - 171
Prepaid expenses and other
current assets 502 202
--------- ---------
Total current assets 7,444 12,917
PROPERTY AND EQUIPMENT, net 3,097 4,207
OTHER ASSETS 195 235
--------- ---------
$ 10,736 $ 17,359
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to factor, net $ 1,298 $ -
Line of credit 2,135 4,759
Accounts payable 3,178 1,505
Accrued liabilities 1,290 1,834
Current portion of long-term debt 8 21
S distribution note 215 266
--------- ---------
Total current liabilities 8,124 8,385
DEFERRED ROYALTY INCOME 213 325
LONG-TERM DEBT, net of current
portion 3 10
<PAGE>
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 15,077,253
and 15,011,529 - 1999 and 1998,
respectively 15 15
Additional paid-in capital 38,126 31,428
Accumulated deficit (35,745) (22,804)
--------- ---------
Total stockholders' equity 2,396 8,639
--------- ---------
$ 10,736 $ 17,359
========= =========
</TABLE>
CONTACT:
Company Contacts:
Mossimo, Inc., Irvine
Mossimo Giannulli, Chairman
Jody Love, Vice President Finance
949/797-0200
or
Investor Relations:
Integrated Corporate Relations, Inc., Westport, CT
Chad A. Jacobs
203/222-9013
